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Is Now The Time To Put National Bank of Canada (TSE:NA) On Your Watchlist?

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·4-min read
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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

So if you're like me, you might be more interested in profitable, growing companies, like National Bank of Canada (TSE:NA). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

View our latest analysis for National Bank of Canada

National Bank of Canada's Earnings Per Share Are 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. It's no surprise, then, that I like to invest in companies with EPS growth. National Bank of Canada managed to grow EPS by 17% per year, over three years. That's a good rate of growth, if it can be sustained.

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 National Bank of Canada's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. While we note National Bank of Canada's EBIT margins were flat over the last year, revenue grew by a solid 25% to CA$9.3b. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

earnings-and-revenue-history
earnings-and-revenue-history

Fortunately, we've got access to analyst forecasts of National Bank of Canada's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are National Bank of Canada Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

We do note that, in the last year, insiders sold -CA$384k worth of shares. But that's far less than the CA$2.5m insiders spend purchasing stock. This makes me even more interested in National Bank of Canada because it suggests that those who understand the company best, are optimistic. It is also worth noting that it was President Laurent Ferreira who made the biggest single purchase, worth CA$1.4m, paying CA$96.74 per share.

The good news, alongside the insider buying, for National Bank of Canada bulls is that insiders (collectively) have a meaningful investment in the stock. Given insiders own a small fortune of shares, currently valued at CA$65m, they have plenty of motivation to push the business to succeed. This should keep them focused on creating long term value for shareholders.

Is National Bank of Canada Worth Keeping An Eye On?

As I already mentioned, National Bank of Canada 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. Of course, just because National Bank of Canada is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of National Bank of Canada, 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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