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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Equity Bancshares (NASDAQ:EQBK). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
How Quickly Is Equity 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. Shareholders will be happy to know that Equity Bancshares' EPS has grown 31% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming. It's also worth noting that the EPS growth has been assisted by share buybacks, indicating the company is in a position to return capital to shareholders.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. It's noted that Equity Bancshares' revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. EBIT margins for Equity Bancshares remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 7.8% to US$198m. That's encouraging news for the company!
In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.
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 Equity Bancshares' future EPS 100% free.
Are Equity Bancshares Insiders Aligned With All Shareholders?
It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. Equity Bancshares followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. To be specific, they have US$26m worth of shares. This considerable investment should help drive long-term value in the business. As a percentage, this totals to 6.4% of the shares on issue for the business, an appreciable amount considering the market cap.
It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. A brief analysis of the CEO compensation suggests they are. Our analysis has discovered that the median total compensation for the CEOs of companies like Equity Bancshares with market caps between US$200m and US$800m is about US$2.7m.
Equity Bancshares offered total compensation worth US$2.3m to its CEO in the year to December 2021. That comes in below the average for similar sized companies and seems pretty reasonable. 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. It can also be a sign of good governance, more generally.
Is Equity Bancshares Worth Keeping An Eye On?
You can't deny that Equity Bancshares has grown its earnings per share at a very impressive rate. That's attractive. If you still have your doubts, remember too that company insiders have a considerable investment aligning themselves with the shareholders and CEO pay is quite modest compared to similarly sized companiess. This may only be a fast rundown, but the key takeaway is that Equity Bancshares is worth keeping an eye on. We should say that we've discovered 2 warning signs for Equity Bancshares (1 is a bit unpleasant!) that you should be aware of before investing here.
The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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.
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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