Like a puppy chasing its tail, some new investors often pursue “the next big thing,” even if that means buying “history stocks” with no income, let alone profit. Unfortunately, high-risk investments are often unlikely to pay off, and many investors pay a price to learn their lesson.
So if you’re like me, you might be more interested in profitable and growing businesses like National Bank of Punjab (NSE: PNB). While profit isn’t necessarily social good, it’s easy to admire a business that can consistently produce it. In comparison, loss-making companies act like a sponge for capital – but unlike such a sponge, they don’t always produce something when in a hurry.
See our latest review for Punjab National Bank
Improving the profits of the Punjab National Bank
In business, but not in life, profit is a key measure of success; and stock prices tend to reflect earnings per share (EPS). So, like a ray of sunlight through a hole in the clouds, improving EPS is considered a good sign. It is therefore astonishing that the EPS of Punjab National Bank fell from 0.80 to 2.64 in just one year. When profits grow so quickly, it often means good things ahead for the business. But the key is to discern if something deep has changed, or if it’s just a one-time boost.
I like to see revenue growth as an indication that growth is sustainable, and I look for a high profit margin before interest and taxes (EBIT) to indicate a competitive gap (although some low-margin companies also have ditches). Not all Punjab National Bank 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. While we note that Punjab National Bank’s EBIT margins were stable over the past year, revenues increased 81% to 227 billion yen. It is really positive.
In the graph below, you can see how the company has increased its profit and revenue over time. Click on the graph to see the exact numbers.
While it is always good to see increased profits, you should always remember that a low balance sheet could come back to bite. So check the strength of Punjab National Bank’s balance sheet, before you get too excited.
Are Punjab National Bank Insiders Aligned With All Shareholders?
I always like to check CEO compensation because I think reasonable compensation levels, around or below the median, can be a sign that shareholders’ interests are being taken into account. I found that the median total compensation of CEOs of companies like Punjab National Bank with market caps between 299 billion yen and 897 billion yen is around 59 million yen.
The CEO of Punjab National Bank received only 3.2 million yen in total compensation for the fiscal year ended. You might view this compensation as somewhat symbolic, suggesting that the CEO doesn’t need a lot of compensation to stay motivated. CEO compensation levels aren’t the most important metric for investors, but when the salary is modest, it promotes better alignment between the CEO and common shareholders. It can also be a sign of a culture of integrity, in the broad sense.
Is the National Bank of the Punjab worth watching?
Punjab National Bank profits took off like any random cryptocurrency, in 2017. Such rapid growth in BPA makes me wonder if the company has reached an inflection point (and I mean the right type.) At the same time, the reasonable CEO compensation reflects well on the board. While I can’t be sure without a deeper dive, it appears that Punjab National Bank has the hallmarks of a quality business; and it would be worth watching. We should say that we found out 2 warning signs for the National Bank of the Punjab (1 shouldn’t be ignored!) Which you should be aware of before investing here.
You can invest in any business. But if you’d rather focus on stocks that have demonstrated insider buying, here’s a list of companies that have done insider buying in the past three months.
Please note that the insider trading discussed in this article refers to reportable trades in the relevant jurisdiction.
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