I Ran A Stock Scan For Earnings Growth And Jernigan Capital (NYSE:JCAP) Passed With Ease
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 contrast to all that, I prefer to spend time on companies like Jernigan Capital (NYSE:JCAP), which has not only revenues, but also profits. While profit is not necessarily a social good, it's easy to admire a business than 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.
View our latest analysis for Jernigan Capital
Jernigan Capital's Earnings Per Share Are Growing.
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Impressively, Jernigan Capital has grown EPS by 20% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Not all of Jernigan Capital'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. While we note Jernigan Capital's EBIT margins were flat over the last year, revenue grew by a solid 138% to US$33m. That's a real positive.
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.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Jernigan Capital.
Are Jernigan Capital Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Not only did Jernigan Capital insiders refrain from selling stock during the year, but they also spent US$83k buying it. That's nice to see, because it suggests insiders are optimistic. It is also worth noting that it was CEO & Director John Good who made the biggest single purchase, worth US$44k, paying US$20.97 per share.
On top of the insider buying, it's good to see that Jernigan Capital insiders have a valuable investment in the business. To be specific, they have US$19m worth of shares. That's a lot of money, and no small incentive to work hard. Even though that's only about 4.4% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.
While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. The cherry on top is that the CEO, John Good is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between US$200m and US$800m, like Jernigan Capital, the median CEO pay is around US$1.8m.
The Jernigan Capital CEO received US$964k in compensation for the year ending 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. It can also be a sign of a culture of integrity, in a broader sense.
Is Jernigan Capital Worth Keeping An Eye On?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Jernigan Capital's strong EPS growth. On top of that, insiders own a significant stake in the company and have been buying more shares. So it's fair to say I think this stock may well deserve a spot on your watchlist. Now, you could try to make up your mind on Jernigan Capital 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 Jernigan Capital 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 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. Thank you for reading.
