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 completely lacks a track record of revenue and profit. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like CBM Bancorp (NASDAQ:CBMB). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
How Fast Is CBM Bancorp Growing Its Earnings Per Share?
Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So it's no surprise that some investors are more inclined to invest in profitable businesses. It's good to see that CBM Bancorp's EPS have grown from US$0.21 to US$0.26 over twelve months. I doubt many would complain about that 24% gain.
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. I note that CBM Bancorp'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 CBM Bancorp's EBIT margins were flat over the last year, revenue grew by a solid 4.9% to US$8.6m. That's progress.
In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.NasdaqCM:CBMB Earnings and Revenue History July 15th 2021
CBM Bancorp isn't a huge company, given its market capitalization of US$54m. That makes it extra important to check on its balance sheet strength.
Are CBM Bancorp Insiders Aligned With All Shareholders?
As a general rule, I think it worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. I discovered that the median total compensation for the CEOs of companies like CBM Bancorp with market caps under US$200m is about US$551k.
The CEO of CBM Bancorp only received US$205k in total compensation for the year ending . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.
Is CBM Bancorp Worth Keeping An Eye On?
One important encouraging feature of CBM Bancorp is that it is growing profits. On top of that, my faith in the board of directors is strengthened by the fact of the reasonable CEO pay. So all in all I think it's worth at least considering for your watchlist. What about risks? Every company has them, and we've spotted 2 warning signs for CBM Bancorp you should know about.
Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
This article by Simply Wall St is general in nature. 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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In This StoryCBMB
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