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Here's Why We Think Southern National Bancorp of Virginia (NASDAQ:SONA) Is Well Worth Watching

Simply Wall St

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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In contrast to all that, I prefer to spend time on companies like Southern National Bancorp of Virginia (NASDAQ:SONA), which has not only revenues, but also profits. While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. 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.

See our latest analysis for Southern National Bancorp of Virginia

How Quickly Is Southern National Bancorp of Virginia Increasing Earnings Per Share?

As one of my mentors once told me, share price follows earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. We can see that in the last three years Southern National Bancorp of Virginia grew its EPS by 16% per year. That's a good rate of growth, if it can be sustained.

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 Southern National Bancorp of Virginia'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. It seems Southern National Bancorp of Virginia is pretty stable, since revenue and EBIT margins are pretty flat year on year. That's not a major concern but nor does it point to the long term growth we like to see.

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.

NasdaqGM:SONA Income Statement, January 15th 2020

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Southern National Bancorp of Virginia's balance sheet strength, before getting too excited.

Are Southern National Bancorp of Virginia 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Any way you look at it Southern National Bancorp of Virginia shareholders can gain quiet confidence from the fact that insiders shelled out US$383k 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. We also note that it was the Co-Founder & Executive Chairman, Georgia Derrico, who made the biggest single acquisition, paying US$36k for shares at about US$15.00 each.

On top of the insider buying, it's good to see that Southern National Bancorp of Virginia insiders have a valuable investment in the business. To be specific, they have US$18m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 4.7% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

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, Joe Shearin is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between US$200m and US$800m, like Southern National Bancorp of Virginia, the median CEO pay is around US$1.7m.

Southern National Bancorp of Virginia offered total compensation worth US$1.1m to its CEO in the year to December 2018. 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 Southern National Bancorp of Virginia Deserve A Spot On Your Watchlist?

One positive for Southern National Bancorp of Virginia is that it is growing EPS. That's nice to see. On top of that, we've seen insiders buying shares even though they already own plenty. 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 Southern National Bancorp of Virginia by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.

As a growth investor I do like to see insider buying. But Southern National Bancorp of Virginia 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

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.