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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Northeast Bank (NASDAQ:NBN). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
How Quickly Is Northeast Bank Increasing Earnings Per Share?
As one of my mentors once told me, share price follows earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. Impressively, Northeast Bank has grown EPS by 26% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). I note that Northeast Bank's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. While we note Northeast Bank's EBIT margins were flat over the last year, revenue grew by a solid 21% to US$83m. That's progress.
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
Since Northeast Bank is no giant, with a market capitalization of US$217m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Northeast Bank Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
The good news is that Northeast Bank insiders spent a whopping US$1.4m on stock in just one year, and I didn't see any selling. And so I find myself almost expectant, and certainly hopeful, that this large outlay signals prescient optimism for the business. It is also worth noting that it was President Richard Wayne who made the biggest single purchase, worth US$291k, paying US$14.57 per share.
The good news, alongside the insider buying, for Northeast Bank bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold US$27m worth of its stock. That's a lot of money, and no small incentive to work hard. That amounts to 13% of the company, demonstrating a degree of high-level alignment with shareholders.
Is Northeast Bank Worth Keeping An Eye On?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Northeast Bank's strong EPS growth. On top of that, insiders own a significant stake in the company and have been buying more shares. So it's fair to say I think this stock may well deserve a spot on your watchlist. Still, you should learn about the 1 warning sign we've spotted with Northeast Bank .
The good news is that Northeast Bank 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.
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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