For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Berkshire Hills Bancorp (NYSE:BHLB). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
How Quickly Is Berkshire Hills Bancorp Increasing Earnings Per Share?
The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, Berkshire Hills Bancorp has grown EPS by 11% per year. That's a pretty good rate, if the company can sustain it.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Our analysis has highlighted that Berkshire Hills Bancorp's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. Berkshire Hills Bancorp maintained stable EBIT margins over the last year, all while growing revenue 15% to US$434m. 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 Berkshire Hills Bancorp's future profits.
Are Berkshire Hills Bancorp Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. 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.
It's good to see Berkshire Hills Bancorp insiders walking the walk, by spending US$411k on shares in just twelve months. This, combined with the lack of sales from insiders, should be a great signal for shareholders in what's to come. We also note that it was the Independent Director, Jeffrey Kip, who made the biggest single acquisition, paying US$292k for shares at about US$29.25 each.
Along with the insider buying, another encouraging sign for Berkshire Hills Bancorp is that insiders, as a group, have a considerable shareholding. To be specific, they have US$14m worth of shares. This considerable investment should help drive long-term value in the business. While their ownership only accounts for 1.0%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.
While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. The cherry on top is that the CEO, Nitin Mhatre is paid comparatively modestly to CEOs at similar sized companies. The median total compensation for CEOs of companies similar in size to Berkshire Hills Bancorp, with market caps between US$1.0b and US$3.2b, is around US$5.5m.
The Berkshire Hills Bancorp CEO received total compensation of just US$2.3m in the year to December 2021. First impressions seem to indicate a compensation policy that is favourable to shareholders. 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 a culture of integrity, in a broader sense.
Does Berkshire Hills Bancorp Deserve A Spot On Your Watchlist?
As previously touched on, Berkshire Hills Bancorp is a growing business, which is encouraging. Better yet, insiders are significant shareholders, and have been buying more shares. These factors alone make the company an interesting prospect for your watchlist, as well as continuing research. We don't want to rain on the parade too much, but we did also find 2 warning signs for Berkshire Hills Bancorp (1 doesn't sit too well with us!) that you need to be mindful of.
The good news is that Berkshire Hills 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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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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
