Here's Why We Think Oak Valley Bancorp (NASDAQ:OVLY) Is Well Worth Watching
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 currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Oak Valley Bancorp (NASDAQ:OVLY). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Oak Valley Bancorp with the means to add long-term value to shareholders.
Check out our latest analysis for Oak Valley Bancorp
How Fast Is Oak Valley Bancorp 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 means EPS growth is considered a real positive by most successful long-term investors. To the delight of shareholders, Oak Valley Bancorp has achieved impressive annual EPS growth of 41%, compound, over the last three years. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Not all of Oak Valley Bancorp's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. EBIT margins for Oak Valley Bancorp remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 46% to US$85m. That's progress.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
Oak Valley Bancorp isn't a huge company, given its market capitalisation of US$229m. That makes it extra important to check on its balance sheet strength.
Are Oak Valley Bancorp Insiders Aligned With All Shareholders?
It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. Oak Valley Bancorp followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. Indeed, they hold US$44m worth of its stock. This considerable investment should help drive long-term value in the business. As a percentage, this totals to 19% of the shares on issue for the business, an appreciable amount considering the market cap.
It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Our quick analysis into CEO remuneration would seem to indicate they are. Our analysis has discovered that the median total compensation for the CEOs of companies like Oak Valley Bancorp with market caps between US$100m and US$400m is about US$1.5m.
The Oak Valley Bancorp CEO received US$829k in compensation for the year ending December 2022. That seems pretty reasonable, especially given it's below the median for similar sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, 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.
Does Oak Valley Bancorp Deserve A Spot On Your Watchlist?
Oak Valley Bancorp's earnings per share have been soaring, with growth rates sky high. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The sharp increase in earnings could signal good business momentum. Big growth can make big winners, so the writing on the wall tells us that Oak Valley Bancorp is worth considering carefully. Now, you could try to make up your mind on Oak Valley Bancorp by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access 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.
