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It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. 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.
So if you're like me, you might be more interested in profitable, growing companies, like Brookline Bancorp ( NASDAQ:BRKL ). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
How Fast Is Brookline Bancorp Growing?
As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. Brookline Bancorp managed to grow EPS by 14% per year, over three years. That growth rate is fairly good, assuming the company can keep it up.
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 Brookline Bancorp's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Brookline Bancorp maintained stable EBIT margins over the last year, all while growing revenue 10% to US$271m. That's a real positive.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
Fortunately, we've got access to analyst forecasts of Brookline Bancorp's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting .
Are Brookline Bancorp Insiders Aligned With All Shareholders?
It makes me feel more secure owning shares in a company, if insiders also own shares, thusly more closely aligning our interests. As a result, I'm encouraged by the fact that insiders own Brookline Bancorp shares worth a considerable sum. Indeed, they hold US$32m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 2.6% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.
It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I'd say they are indeed. For companies with market capitalizations between US$1.0b and US$3.2b, like Brookline Bancorp, the median CEO pay is around US$4.0m.
The Brookline Bancorp CEO received US$2.2m in compensation for the year ending December 2018. That seems pretty reasonable, especially given its below the median for similar sized companies. 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 good governance, more generally.
Does Brookline Bancorp Deserve A Spot On Your Watchlist?
One important encouraging feature of Brookline Bancorp is that it is growing profits. The fact that EPS is growing is a genuine positive for Brookline Bancorp, but the pretty picture gets better than that. Boasting both modest CEO pay and considerable insider ownership, I'd argue this one is worthy of the watchlist, at least. Of course, identifying quality businesses is only half the battle; investors need to know whether the stock is undervalued. So you might want to consider this free discounted cashflow valuation of Brookline Bancorp.
Although Brookline Bancorp certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying , could be exactly what you're looking for.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
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