The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies with no revenue, no profit, and a history of failure can successfully find investors. Sometimes these stories can cloud investors’ minds, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss-making companies are always in a race against time to achieve financial viability, so investors in these companies may take on more risk than they should.
Contrary to all this, many investors prefer to focus on companies like Silvergate Capital (NYSE:IF), which not only generates revenue, but also profits. While that doesn’t necessarily mean it’s undervalued, the company’s profitability is enough to warrant some appreciation, especially if it’s growing.
Silvergate Capital’s earnings per share increase
If a company can keep increasing its earnings per share (EPS) long enough, its stock price should eventually follow. It therefore makes sense for experienced investors to pay close attention to company EPS when undertaking investment research. Shareholders will be pleased to learn that Silvergate Capital’s EPS has grown 32% annually, compounded, over three years. Generally, we would say that if a company can follow this kind of growth, shareholders will be radiant.
Revenue growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and tax (EBIT) margin, it’s a great way for a business to maintain a competitive edge in the market. Our analysis has shown that Silvergate Capital’s earnings operations has not accounted for all of its revenue in the previous 12 months, so our analysis of its margins may not accurately reflect the underlying business. Silvergate Capital’s EBIT margins were virtually unchanged from a year ago, but the company should be pleased to report revenue growth for the period of 85% to $281 million. This is encouraging news for the company!
The chart below shows how the company’s top and bottom line has grown over time. To see the actual numbers, click on the chart.
You don’t drive with your eyes on the rearview mirror, so you might be more interested in that free report showing analyst forecasts for Silvergate Capital’s coming profits.
Are Silvergate Capital insiders aligned with all shareholders?
It is a necessity that business leaders act in the best interests of shareholders and therefore insider investing always comes as insurance for the market. So it’s good to see that insiders at Silvergate Capital have significant capital invested in the stock. To be precise, they own $20 million worth of stock. It shows strong buy-in and can indicate belief in the business strategy. Even though that’s only about 2.2% of the company, it’s enough money to indicate alignment between company executives and common stockholders.
It’s good to see that insiders are invested in the company, but are the compensation levels reasonable? A brief analysis of CEO compensation suggests they are. For companies with a market capitalization between $400 million and $1.6 billion, such as Silvergate Capital, the median CEO salary is around $3.9 million.
The Silvergate Capital CEO only received $1.9 million in total compensation for the year ending December 2021. This is clearly well below average, so on the face of it this arrangement seems generous for shareholders and indicates a modest compensation culture. CEO compensation isn’t the most important aspect of a company to consider, but when it’s reasonable, it gives a little more confidence that executives are looking after shareholders’ interests. It can also be a sign of good governance more generally.
Is Silvergate Capital worth watching?
For growth investors, Silvergate Capital’s gross earnings growth rate is a beacon in the night. If you’re still in doubt, also remember that company insiders have a huge investment that aligns with shareholders, and CEO compensation is quite modest compared to companies of a similar size. This may just be a quick overview, but the key takeaway is that Silvergate Capital is worth keeping an eye on. It must be said that we discovered 2 warning signs for Silvergate Capital which you should be aware of before investing here.
While Silvergate Capital certainly looks good, it could attract more investors if insiders buy shares. If you like seeing insiders buy, then this free list of growing companies that insiders are buyingcould be exactly what you are looking for.
Please note that insider trading discussed in this article refers to reportable trading in the relevant jurisdiction.
Valuation is complex, but we help make it simple.
Find out if Silvergate Capital is potentially overvalued or undervalued by viewing our full analysis, which includes fair value estimates, risks and warnings, dividends, insider trading and financial health.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.