Here's Why We Think MainStreet Bancshares (NASDAQ:MNSB) Might Deserve Your Attention Today
Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone 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.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like MainStreet Bancshares (NASDAQ:MNSB). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide MainStreet Bancshares with the means to add long-term value to shareholders.
Check out our latest analysis for MainStreet Bancshares
How Fast Is MainStreet Bancshares Growing?
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. That makes EPS growth an attractive quality for any company. To the delight of shareholders, MainStreet Bancshares has achieved impressive annual EPS growth of 47%, compound, over the last three years. Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Our analysis has highlighted that MainStreet Bancshares' revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. MainStreet Bancshares maintained stable EBIT margins over the last year, all while growing revenue 31% to US$81m. That's progress.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for MainStreet Bancshares.
Are MainStreet Bancshares Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
It's good to see MainStreet Bancshares insiders walking the walk, by spending US$371k on shares in just twelve months. When you contrast that with the complete lack of sales, it's easy for shareholders to be brimming with joyful expectancy. We also note that it was the President, Jeff Dick, who made the biggest single acquisition, paying US$234k for shares at about US$21.40 each.
Along with the insider buying, another encouraging sign for MainStreet Bancshares is that insiders, as a group, have a considerable shareholding. To be specific, they have US$15m worth of shares. That's a lot of money, and no small incentive to work hard. Those holdings account for over 9.2% of the company; visible skin in the game.
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, Jeff Dick, is paid less than the median for similar sized companies. For companies with market capitalisations between US$100m and US$400m, like MainStreet Bancshares, the median CEO pay is around US$1.6m.
The MainStreet Bancshares CEO received US$1.3m in compensation for the year ending December 2022. That comes in below the average for similar sized companies and seems pretty reasonable. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Should You Add MainStreet Bancshares To Your Watchlist?
MainStreet Bancshares' earnings per share growth have been climbing higher at an appreciable rate. Just as heartening; insiders both own and are buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe MainStreet Bancshares deserves timely attention. We don't want to rain on the parade too much, but we did also find 2 warning signs for MainStreet Bancshares (1 can't be ignored!) that you need to be mindful of.
Keen growth investors love to see insider buying. Thankfully, MainStreet Bancshares isn't the only one. You can see a a free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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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.
