Do Bendigo and Adelaide Bank's (ASX:BEN) Earnings Warrant Your Attention?

·4-min read

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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In contrast to all that, I prefer to spend time on companies like Bendigo and Adelaide Bank (ASX:BEN), which has not only revenues, but also profits. 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.

View our latest analysis for Bendigo and Adelaide Bank

How Quickly Is Bendigo and Adelaide Bank Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. We can see that in the last three years Bendigo and Adelaide Bank grew its EPS by 8.9% per year. That's a good rate of growth, if it can be sustained.

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 Bendigo and Adelaide 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 Bendigo and Adelaide Bank's EBIT margins were flat over the last year, revenue grew by a solid 17% to AU$1.7b. That's progress.

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.

earnings-and-revenue-history
earnings-and-revenue-history

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 Bendigo and Adelaide Bank's future profits.

Are Bendigo and Adelaide 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

We note that Bendigo and Adelaide Bank insiders spent AU$215k on stock, over the last year; in contrast, we didn't see any selling. That's nice to see, because it suggests insiders are optimistic. It is also worth noting that it was Non Executive Independent Director Vicki Carter who made the biggest single purchase, worth AU$67k, paying AU$9.62 per share.

On top of the insider buying, it's good to see that Bendigo and Adelaide Bank insiders have a valuable investment in the business. To be specific, they have AU$21m worth of shares. That's a lot of money, and no small incentive to work hard. Despite being just 0.4% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. That's because on our analysis the CEO, Marnie Baker, is paid less than the median for similar sized companies. For companies with market capitalizations between AU$2.9b and AU$9.3b, like Bendigo and Adelaide Bank, the median CEO pay is around AU$2.9m.

Bendigo and Adelaide Bank offered total compensation worth AU$1.9m to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. 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.

Does Bendigo and Adelaide Bank Deserve A Spot On Your Watchlist?

As I already mentioned, Bendigo and Adelaide Bank is a growing business, which is what I like to see. On top of that, we've seen insiders buying shares even though they already own plenty. That makes the company a prime candidate for my watchlist - and arguably a research priority. You should always think about risks though. Case in point, we've spotted 3 warning signs for Bendigo and Adelaide Bank you should be aware of, and 1 of them is potentially serious.

As a growth investor I do like to see insider buying. But Bendigo and Adelaide Bank isn't the only one. You can see a a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting