Does Bryn Mawr Bank (NASDAQ:BMTC) Deserve A Spot On Your Watchlist?
Simply Wall St
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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Bryn Mawr Bank (NASDAQ:BMTC). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
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. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. I, for one, am blown away by the fact that Bryn Mawr Bank has grown EPS by 40% per year, over the last three years. While that sort of growth rate isn't sustainable for long, it certainly catches my attention; like a crow with a sparkly stone.
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 Bryn Mawr Bank'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 Bryn Mawr Bank's EBIT margins were flat over the last year, revenue grew by a solid 10% to US$215m. 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.
NasdaqGS:BMTC Income Statement, September 20th 2019
Are Bryn Mawr Bank Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
The good news for Bryn Mawr Bank shareholders is that no insiders reported selling shares in the last year. So it's definitely nice that Director Diego Calderin bought US$21k worth of shares at an average price of around US$35.25.
On top of the insider buying, it's good to see that Bryn Mawr Bank insiders have a valuable investment in the business. To be specific, they have US$12m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 1.7% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. The cherry on top is that the CEO, Frank Leto is paid comparatively modestly to CEOs at similar sized companies. I discovered that the median total compensation for the CEOs of companies like Bryn Mawr Bank with market caps between US$400m and US$1.6b is about US$2.7m.
Bryn Mawr Bank offered total compensation worth US$1.7m to its CEO in the year to December 2018. That comes in below the average for similar sized companies, and seems pretty reasonable to me. 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. It can also be a sign of a culture of integrity, in a broader sense.
Is Bryn Mawr Bank Worth Keeping An Eye On?
Bryn Mawr Bank's earnings have taken off like any random crypto-currency did, back in 2017. The cherry on top is that insiders own a bunch of shares, and one has been buying more. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Bryn Mawr Bank deserves timely attention. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Bryn Mawr Bank is trading on a high P/E or a low P/E, relative to its industry.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
