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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 completely lacks a track record of revenue and profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
So if you're like me, you might be more interested in profitable, growing companies, like TriState Capital Holdings (NASDAQ:TSC). 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.
How Fast Is TriState Capital Holdings 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. That means EPS growth is considered a real positive by most successful long-term investors. Impressively, TriState Capital Holdings has grown EPS by 28% 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 see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Not all of TriState Capital Holdings'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 TriState Capital Holdings's EBIT margins were flat over the last year, revenue grew by a solid 12% to US$177m. That's progress.
In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.
Fortunately, we've got access to analyst forecasts of TriState Capital Holdings's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are TriState Capital Holdings 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.
Despite -US$565.1k worth of sales, TriState Capital Holdings insiders have overwhelmingly been buying the stock, spending US$1.3m on purchases in the last twelve months. On balance, to me, this signals their optimism. We also note that it was the Chairman, James Getz, who made the biggest single acquisition, paying US$495k for shares at about US$19.80 each.
On top of the insider buying, it's good to see that TriState Capital Holdings insiders have a valuable investment in the business. Given insiders own a small fortune of shares, currently valued at US$65m, they have plenty of motivation to push the business to succeed. That holding amounts to 8.6% of the stock on issue, thus making insiders influential, and aligned, owners of the business.
Does TriState Capital Holdings Deserve A Spot On Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about TriState Capital Holdings'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. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if TriState Capital Holdings is trading on a high P/E or a low P/E, relative to its industry.
The good news is that TriState Capital Holdings 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
If you spot an error that warrants correction, please contact the editor at email@example.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.
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