For newbies, it might seem like a good idea (and an exciting prospect) to buy a business that tells investors a good story, even if it lacks a history of revenue and profit altogether. But the reality is that when a business loses money every year, for long enough, its investors will usually take their share of those losses.
So if you’re like me, you might be more interested in profitable and growing businesses like Capital of Silvergate (NYSE: SI). While that doesn’t make stocks worth buying at all costs, you can’t deny that successful capitalism ultimately requires profits. While a well-funded business can suffer losses for years, unless its owners have an endless appetite to subsidize the customer, it will eventually have to generate a profit, or else take its last breath.
Discover our latest analysis for Silvergate Capital
How fast is Silvergate Capital growing?
As one of my mentors once told me, the stock price tracks earnings per share (EPS). Therefore, there are a lot of investors who like to buy stocks in companies with growing EPS. As a tree steadily reaches for the sky, Silvergate Capital’s EPS has increased by 30% each year, compounded, over three years. This has undoubtedly fueled the optimism that sees the stock trading at a high multiple of earnings.
I like to look at earnings before interest and tax margins (EBIT), as well as revenue growth, to get another idea of how well the business is growing. Not all Silvergate Capital income this year is income operations, so keep in mind that the revenue and margin numbers I used may not be the best representation of the underlying business. Although we note that Silvergate Capital’s EBIT margins were stable over the past year, revenues increased 85% to US $ 152 million. It is really positive.
You can take a look at the company’s revenue and profit growth trend, in the graph below. For more details, click on the image.
You don’t drive with your eyes on the rearview mirror, so this may be of more interest to you free report showing analyst forecasts for Silvergate Capital future profits.
Are Silvergate Capital Insiders Aligned with All Shareholders?
I like that business leaders have some skin in the game, so to speak, because it increases the alignment of incentives between the people who run the business and its real owners. So it’s good to see that Silvergate Capital insiders have significant capital invested in the stock. Indeed, they have invested a sparkling mountain of wealth, currently valued at US $ 104 million. This suggests to me that management will be very attentive to the interests of shareholders when making a decision!
It’s good to see insiders invested in the company, but are the pay levels reasonable? Well, based on CEO pay, I would say they are indeed. I found that the median total compensation of CEOs of companies like Silvergate Capital with market caps between $ 2.0 billion and $ 6.4 billion is around $ 5.2 million.
The CEO of Silvergate Capital received total compensation of only US $ 952,000 in the year to. It sounds like modest compensation to me, and may suggest a certain respect for the interests of shareholders. CEO compensation isn’t the most important aspect of a business to consider, but when it’s reasonable, it gives me a little more confidence that executives are looking out for the interests of shareholders. It can also be a sign of a culture of integrity, in the broad sense.
Is Silvergate Capital Worth Watching?
For growth investors like myself, Silvergate Capital’s gross earnings growth rate is a beacon overnight. If you need more conviction beyond that EPS growth rate, don’t forget the reasonable compensation and strong insider ownership. Everyone has their own tastes, but I think all of this makes Silvergate Capital quite interesting. It should be noted however that we have found 3 warning signs for Silvergate Capital that you need to take into consideration.
Of course, you can (sometimes) buy stocks that are not growing income and not have insiders who buy stocks. But as a growth investor, I always like to check out companies that to do have these characteristics. You can access a free list of them here.
Please note that the insider dealing discussed in this article refers to reportable trades in the relevant jurisdiction.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
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