Here's Why We Think Enterprise Bancorp (NASDAQ:EBTC) Is Well Worth Watching
For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Enterprise Bancorp (NASDAQ:EBTC). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
Check out our latest analysis for Enterprise Bancorp
How Fast Is Enterprise Bancorp Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. We can see that in the last three years Enterprise Bancorp grew its EPS by 15% per year. That's a good rate of growth, if it can be sustained.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. It's noted that Enterprise Bancorp's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. EBIT margins for Enterprise Bancorp remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 6.6% to US$168m. That's encouraging news for the company!
In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.
While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Enterprise Bancorp's balance sheet strength, before getting too excited.
Are Enterprise Bancorp Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Over the last 12 months Enterprise Bancorp insiders spent US$122k more buying shares than they received from selling them. Although some people may hesitate due to the share sales, the fact that insiders bought more than they sold, is a positive thing to note. Zooming in, we can see that the biggest insider purchase was by company insider Mary King for US$72k worth of shares, at about US$29.98 per share.
On top of the insider buying, it's good to see that Enterprise Bancorp insiders have a valuable investment in the business. Holding US$92m worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. That holding amounts to 25% of the stock on issue, thus making insiders influential owners of the business and aligned with the interests of shareholders.
While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because on our analysis the CEO, Jack Clancy, is paid less than the median for similar sized companies. Our analysis has discovered that the median total compensation for the CEOs of companies like Enterprise Bancorp with market caps between US$200m and US$800m is about US$2.3m.
Enterprise Bancorp offered total compensation worth US$1.4m to its CEO in the year to December 2022. That seems pretty reasonable, especially given it's below the median for similar sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.
Is Enterprise Bancorp Worth Keeping An Eye On?
As previously touched on, Enterprise Bancorp is a growing business, which is encouraging. On top of that, we've seen insiders buying shares even though they already own plenty. That should do plenty in prompting budding investors to undertake a bit more research - or even adding the company to their watchlists. Now, you could try to make up your mind on Enterprise Bancorp by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
The good news is that Enterprise Bancorp is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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