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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital – so investors should be cautious that they’re not throwing good money after bad.
So if this idea of high risk and high reward doesn’t suit, you might be more interested in profitable, growing companies, like CVB Financial (NASDAQ:CVBF). While this doesn’t necessarily speak to whether it’s undervalued, the profitability of the business is enough to warrant some appreciation – especially if its growing.
Check out our latest analysis for CVB Financial
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How Quickly Is CVB Financial Increasing Earnings Per Share?
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. We can see that in the last three years CVB Financial grew its EPS by 10% per year. That’s a good rate of growth, if it can be sustained.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it’s a great way for a company to maintain a competitive advantage in the market. It’s noted that CVB Financial’s revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. EBIT margins for CVB Financial remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 14% to US$555m. 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.
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 CVB Financial’s future profits.
Are CVB Financial 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. That’s because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Not only did CVB Financial insiders refrain from selling stock during the year, but they also spent US$128k buying it. That paints the company in a nice light, as it signals that its leaders are feeling confident in where the company is heading. Zooming in, we can see that the biggest insider purchase was by Independent Director Jane Majors for US$22k worth of shares, at about US$18.08 per share.
Along with the insider buying, another encouraging sign for CVB Financial is that insiders, as a group, have a considerable shareholding. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$146m. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company’s future.
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, Dave Brager is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalisations between US$2.0b and US$6.4b, like CVB Financial, the median CEO pay is around US$6.5m.
CVB Financial’s CEO took home a total compensation package of US$2.9m in the year prior to December 2022. That looks like a modest pay packet, and may hint at a certain respect for the interests of 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. It can also be a sign of a culture of integrity, in a broader sense.
Does CVB Financial Deserve A Spot On Your Watchlist?
One positive for CVB Financial is that it is growing EPS. That’s nice to see. Better yet, insiders are significant shareholders, and have been buying more shares. That should do plenty in prompting budding investors to undertake a bit more research – or even adding the company to their watchlists. You still need to take note of risks, for example – CVB Financial has 1 warning sign we think you should be aware of.
The good news is that CVB Financial is not the only growth stock with insider buying. Here’s a list of them… with insider buying in the last three months!
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.
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