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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. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Northrim BanCorp (NASDAQ:NRIM). 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. 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 Fast Is Northrim BanCorp Growing?
As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. Northrim BanCorp managed to grow EPS by 4.7% per year, over three years. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.
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). Not all of Northrim 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. Northrim BanCorp maintained stable EBIT margins over the last year, all while growing revenue 6.0% to US$95m. That's a real positive.
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 Northrim BanCorp is no giant, with a market capitalization of US$246m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Northrim 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, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Despite -US$88.3k worth of sales, Northrim BanCorp insiders have overwhelmingly been buying the stock, spending US$309k on purchases in the last twelve months. You could argue that level of buying implies genuine confidence in the business. It is also worth noting that it was Director Karl M. Hanneman who made the biggest single purchase, worth US$26k, paying US$37.80 per share.
I do like that insiders have been buying shares in Northrim BanCorp, but there is more evidence of shareholder friendly management. I refer to the very reasonable level of CEO pay. I discovered that the median total compensation for the CEOs of companies like Northrim BanCorp with market caps between US$100m and US$400m is about US$1.2m.
The Northrim BanCorp CEO received US$771k in compensation for the year ending December 2018. That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn't a huge factor in my view of the company, 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 Northrim BanCorp Worth Keeping An Eye On?
One positive for Northrim 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. Once you've identified a business you like, the next step is to consider what you think it's worth. And right now is your chance to view our exclusive discounted cashflow valuation of Northrim BanCorp. You might benefit from giving it a glance today.
The good news is that Northrim 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
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.