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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Central Valley Community Bancorp (NASDAQ:CVCY). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
View our latest analysis for Central Valley Community Bancorp
Central Valley Community Bancorp's Earnings Per Share Are Growing.
As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. Central Valley Community Bancorp managed to grow EPS by 5.2% per year, over three years. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. I note that Central Valley Community Bancorp's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Central Valley Community Bancorp maintained stable EBIT margins over the last year, all while growing revenue 7.8% to US$77m. That's progress.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
Fortunately, we've got access to analyst forecasts of Central Valley Community Bancorp's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Central Valley Community Bancorp Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Insiders both bought and sold Central Valley Community Bancorp shares in the last year, but the good news is they spent US$26k more buying than they netted selling. When you weigh that up, it is a mild positive, indicating increased alignment between shareholders and management.
Along with the insider buying, another encouraging sign for Central Valley Community Bancorp is that insiders, as a group, have a considerable shareholding. Indeed, they hold US$43m worth of its stock. That's a lot of money, and no small incentive to work hard. That amounts to 16% of the company, demonstrating a degree of high-level alignment with 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, Jim Ford is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between US$100m and US$400m, like Central Valley Community Bancorp, the median CEO pay is around US$1.1m.
The Central Valley Community Bancorp CEO received US$659k 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. I'd also argue reasonable pay levels attest to good decision making more generally.
Should You Add Central Valley Community Bancorp To Your Watchlist?
As I already mentioned, Central Valley Community Bancorp is a growing business, which is what I like to see. On top of that, we've seen insiders buying shares even though they already own plenty. That makes the company a prime candidate for my watchlist - and arguably a research priority. Once you've identified a business you like, the next step is to consider what you think it's worth. And right now is your chance to view our exclusive discounted cashflow valuation of Central Valley Community Bancorp. You might benefit from giving it a glance today.
The good news is that Central Valley Community Bancorp 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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