Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. 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 Ohio Valley Banc (NASDAQ:OVBC). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
Ohio Valley Banc'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. Ohio Valley Banc managed to grow EPS by 10% per year, over three years. 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 Ohio Valley Banc'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. Ohio Valley Banc's EBIT margins are flat but, of some concern, its revenue is actually down. And that does make me a little more cautious of the stock.
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
Ohio Valley Banc isn't a huge company, given its market capitalization of US$180m. That makes it extra important to check on its balance sheet strength.
Are Ohio Valley Banc 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
One positive for Ohio Valley Banc, is that company insiders paid US$16k for shares in the last year. While this isn't much, we also note an absence of sales.
The good news, alongside the insider buying, for Ohio Valley Banc bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold US$12m worth of its stock. That's a lot of money, and no small incentive to work hard. Those holdings account for over 6.9% of the company; visible skin in the game.
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. The cherry on top is that the CEO, Tom Wiseman is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between US$100m and US$400m, like Ohio Valley Banc, the median CEO pay is around US$1.1m.
The Ohio Valley Banc CEO received US$688k in compensation for the year ending December 2018. That seems pretty reasonable, especially given its below the median for similar sized companies. 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. It can also be a sign of a culture of integrity, in a broader sense.
Does Ohio Valley Banc Deserve A Spot On Your Watchlist?
As I already mentioned, Ohio Valley Banc is a growing business, which is what I like to see. Better yet, insiders are significant shareholders, and have been buying more shares. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. Now, you could try to make up your mind on Ohio Valley Banc by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
The good news is that Ohio Valley Banc 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.