We Ran A Stock Scan For Earnings Growth And Old Second Bancorp (NASDAQ:OSBC) Passed With Ease
It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
In contrast to all that, many investors prefer to focus on companies like Old Second Bancorp (NASDAQ:OSBC), which has not only revenues, but also profits. Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
View our latest analysis for Old Second Bancorp
Old Second Bancorp's Earnings Per Share Are Growing
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. Shareholders will be happy to know that Old Second Bancorp's EPS has grown 25% each year, compound, over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Our analysis has highlighted that Old Second Bancorp's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. EBIT margins for Old Second Bancorp remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 61% to US$272m. That's progress.
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.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Old Second Bancorp's future EPS 100% free.
Are Old Second Bancorp Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
We note that Old Second Bancorp insiders spent US$192k on stock, over the last year; in contrast, we didn't see any selling. That paints the company in a nice light, as it signals that its leaders are feeling confident in where the company is heading. We also note that it was the Independent Lead Director, Barry Finn, who made the biggest single acquisition, paying US$164k for shares at about US$16.44 each.
The good news, alongside the insider buying, for Old Second Bancorp bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold US$27m worth of its stock. This considerable investment should help drive long-term value in the business. While their ownership only accounts for 3.8%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.
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. That's because Old Second Bancorp's CEO, Jim Eccher, is paid at a relatively modest level when compared to other CEOs for companies of this size. For companies with market capitalisations between US$400m and US$1.6b, like Old Second Bancorp, the median CEO pay is around US$3.5m.
The CEO of Old Second Bancorp only received US$1.7m in total compensation for the year ending December 2022. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Is Old Second Bancorp Worth Keeping An Eye On?
If you believe that share price follows earnings per share you should definitely be delving further into Old Second Bancorp's strong EPS growth. Furthermore, company insiders have been adding to their significant stake in the company. Astute investors will want to keep this stock on watch. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Old Second Bancorp that you should be aware of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Old Second Bancorp, you'll probably love this free list of growing companies that insiders are buying.
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.
