Here's Why We Think Northeast Community Bancorp (NASDAQ:NECB) Is Well Worth Watching
It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. 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.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Northeast Community Bancorp (NASDAQ:NECB). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
See our latest analysis for Northeast Community Bancorp
Northeast Community Bancorp's Earnings Per Share Are Growing.
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Over the last three years, Northeast Community Bancorp has grown EPS by 8.1% per year. That growth rate is fairly good, assuming the company can keep it up.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Not all of Northeast Community Bancorp's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. Northeast Community Bancorp maintained stable EBIT margins over the last year, all while growing revenue 4.9% to US$43m. That's a real positive.
In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.
Since Northeast Community Bancorp is no giant, with a market capitalization of US$177m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Northeast Community Bancorp Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Any way you look at it Northeast Community Bancorp shareholders can gain quiet confidence from the fact that insiders shelled out US$514k to buy stock, over the last year. And when you consider that there was no insider selling, you can understand why shareholders might believe that lady luck will grace this business. It is also worth noting that it was Chairman & CEO Kenneth Martinek who made the biggest single purchase, worth US$200k, paying US$7.46 per share.
I do like that insiders have been buying shares in Northeast Community Bancorp, but there is more evidence of shareholder friendly management. Specifically, the CEO is paid quite reasonably for a company of this size. I discovered that the median total compensation for the CEOs of companies like Northeast Community Bancorp with market caps between US$100m and US$400m is about US$1.1m.
Northeast Community Bancorp offered total compensation worth US$588k to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. 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. I'd also argue reasonable pay levels attest to good decision making more generally.
Does Northeast Community Bancorp Deserve A Spot On Your Watchlist?
One positive for Northeast Community Bancorp is that it is growing EPS. That's nice to see. Like chocolate chips in vanilla ice cream, the insider buying, and modest CEO pay, make it better. If that doesn't automatically earn it a spot on your watchlist then I'd posit it warrants a closer look at the very least. What about risks? Every company has them, and we've spotted 1 warning sign for Northeast Community Bancorp you should know about.
As a growth investor I do like to see insider buying. But Northeast Community Bancorp 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.
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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