If EPS Growth Is Important To You, Bank of Montreal (TSE:BMO) Presents An Opportunity
Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone 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. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
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 Bank of Montreal (TSE:BMO). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Bank of Montreal with the means to add long-term value to shareholders.
See our latest analysis for Bank of Montreal
How Fast Is Bank of Montreal Growing?
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. That makes EPS growth an attractive quality for any company. It certainly is nice to see that Bank of Montreal has managed to grow EPS by 30% per year 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. Not all of Bank of Montreal's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. While we note Bank of Montreal achieved similar EBIT margins to last year, revenue grew by a solid 23% to CA$33b. That's a real positive.
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.
You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Bank of Montreal's future profits.
Are Bank of Montreal 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. 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.
We haven't seen any insiders selling Bank of Montreal shares, in the last year. So it's definitely nice that Independent Director Madhu Ranganathan bought CA$45k worth of shares at an average price of around CA$137. Purchases like this can help the investors understand the views of the management team; in which case they see some potential in Bank of Montreal.
Along with the insider buying, another encouraging sign for Bank of Montreal is that insiders, as a group, have a considerable shareholding. Indeed, they hold CA$26m worth of its stock. This considerable investment should help drive long-term value in the business. Even though that's only about 0.03% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.
Is Bank of Montreal Worth Keeping An Eye On?
If you believe that share price follows earnings per share you should definitely be delving further into Bank of Montreal's strong EPS growth. Moreover, the management and board of the company hold a significant stake in the company, with one party adding to this total. Astute investors will want to keep this stock on watch. You should always think about risks though. Case in point, we've spotted 2 warning signs for Bank of Montreal you should be aware of, and 1 of them doesn't sit too well with us.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Bank of Montreal, 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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