It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Shore Bancshares (NASDAQ:SHBI). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Shore Bancshares with the means to add long-term value to shareholders.
Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So EPS growth can certainly encourage an investor to take note of a stock. It's an outstanding feat for Shore Bancshares to have grown EPS from US$0.42 to US$1.32 in just one year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future. This could point to the business hitting a point of inflection.
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. It's noted that Shore Bancshares' revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. Shore Bancshares maintained stable EBIT margins over the last year, all while growing revenue 53% to US$197m. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
NasdaqGS:SHBI Earnings and Revenue History March 3rd 2025
Are Shore Bancshares Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
We note that Shore Bancshares insiders spent US$140k on stock, over the last year; in contrast, we didn't see any selling. This is a good look for the company as it paints an optimistic picture for the future. It is also worth noting that it was Independent Director Clyde Kelly who made the biggest single purchase, worth US$56k, paying US$11.20 per share.
Along with the insider buying, another encouraging sign for Shore Bancshares is that insiders, as a group, have a considerable shareholding. Indeed, they hold US$44m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 8.8% of the company; visible skin in the game.
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, Jimmy Burke is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalisations between US$200m and US$800m, like Shore Bancshares, the median CEO pay is around US$2.2m.
The CEO of Shore Bancshares only received US$1.0m in total compensation for the year ending December 2023. First impressions seem to indicate a compensation policy that is favourable to shareholders. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Is Shore Bancshares Worth Keeping An Eye On?
Shore Bancshares' earnings per share have been soaring, with growth rates sky high. What's more, insiders own a significant stake in the company and have been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Shore Bancshares deserves timely attention. If you think Shore Bancshares might suit your style as an investor, you could go straight to its annual report, or you could first check our discounted cash flow (DCF) valuation for the company.
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.
