The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Shore Bancshares (NASDAQ:SHBI). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
See our latest analysis for Shore Bancshares
How Quickly Is Shore Bancshares Increasing Earnings Per Share?
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That means EPS growth is considered a real positive by most successful long-term investors. Shore Bancshares managed to grow EPS by 7.0% per year, over three years. This may not be setting the world alight, but it does show that EPS is on the upwards trend.
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. It's noted that Shore Bancshares' revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. Shore Bancshares maintained stable EBIT margins over the last year, all while growing revenue 57% to US$122m. That's encouraging news for the company!
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Shore Bancshares' forecast profits?
Are Shore Bancshares 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, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Not only did Shore Bancshares insiders refrain from selling stock during the year, but they also spent US$54k buying it. This is a good look for the company as it paints an optimistic picture for the future.
The good news, alongside the insider buying, for Shore Bancshares bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold US$40m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 12% 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 big picture. That's because Shore Bancshares' CEO, Scott Beatty, is paid at a relatively modest level when compared to other CEOs for companies of this size. Our analysis has discovered that the median total compensation for the CEOs of companies like Shore Bancshares with market caps between US$200m and US$800m is about US$2.5m.
The CEO of Shore Bancshares only received US$1.1m in total compensation for the year ending December 2021. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Is Shore Bancshares Worth Keeping An Eye On?
As previously touched on, Shore Bancshares is a growing business, which is encouraging. In addition, insiders have been busy adding to their sizeable holdings in the company. That makes the company a prime candidate for your watchlist - and arguably a research priority. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Shore Bancshares 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 Shore Bancshares, 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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