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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 completely lacks a track record of revenue and profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.
So if you're like me, you might be more interested in profitable, growing companies, like ESSA Bancorp (NASDAQ:ESSA). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
How Fast Is ESSA Bancorp Growing Its Earnings Per Share?
In the last three years ESSA Bancorp's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. As a result, I'll zoom in on growth over the last year, instead. ESSA Bancorp boosted its trailing twelve month EPS from US$1.23 to US$1.48, in the last year. That's a 20% gain; respectable growth in the broader scheme of things.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. I note that ESSA Bancorp's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. ESSA Bancorp maintained stable EBIT margins over the last year, all while growing revenue 10% to US$59m. That's progress.
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.
Since ESSA Bancorp is no giant, with a market capitalization of US$158m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are ESSA Bancorp Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
In twelve months, insiders sold -US$14k worth of ESSA Bancorp shares. On the other hand, Executive VP & Chief Banking Officer Peter Gray paid US$34k for shares, at a price of about US$13.42 per share. And that's a reason to be optimistic.
On top of the insider buying, it's good to see that ESSA Bancorp insiders have a valuable investment in the business. Indeed, they hold US$14m worth of its stock. That's a lot of money, and no small incentive to work hard. Those holdings account for over 8.6% of the company; visible skin in the game.
Should You Add ESSA Bancorp To Your Watchlist?
One positive for ESSA Bancorp is that it is growing EPS. That's nice to see. Better yet, insiders are significant shareholders, and have been buying more shares. That makes the company a prime candidate for my watchlist - and arguably a research priority. You still need to take note of risks, for example - ESSA Bancorp has 1 warning sign we think you should be aware of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of ESSA Bancorp, you'll probably love this free list of growing companies that insiders are buying.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
This article by Simply Wall St is general in nature. 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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