• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Financial Services

A Trip to the Ozarks

  Insiders are buying into Bank of the Ozarks. Should you follow?
By MEENA KRISHNAMSETTY Apr 25, 2013 | 11:00 AM EDT
Stocks quotes in this article: OZRK, IBKC, RF

Since mid-April, several insiders have bought shares of Bank of the Ozarks (OZRK), a $1.5 billion market cap regional bank with a majority of branch locations in Arkansas, at prices between $40 and $41 per share. Some of these purchases were less than $50,000 apiece, and one larger buy was by a new board member who could be adding the shares simply as a courtesy. But considering these purchases together, the trend is noteworthy.

We track insider purchases because stocks bought by insiders tend to exhibit a small outperformance effect, which increases if the focus is narrowed to occasions when multiple insiders are buying within a short period. This is because insiders avoid buying the stock (thus increasing their company-specific risk) unless they are confident in its prospects, otherwise they prefer to diversify their holdings.

In the first quarter of 2013, Bank of the Ozarks increased revenue by 6% compared with a year earlier, with growth driven by a rise in non-interest income. With non-interest expenses rising more slowly, net income came in 11% higher. Some of these increases were due to the acquisition regional bank Genala Banc of Alabama in the final quarter of 2012, and so it should not be taken as an indicator of sustainable earnings growth. Book value per share increased by 16%, though the bank still trades well above the book value of its equity.

In terms of earnings, the bank looks like something of a better value, though still dependent on improved performance. Specifically, Bank of the Ozarks currently trades at 18x trailing earnings. That multiple will fall a small amount as the company records more quarters with its new acquisition, but that's certainly not a strong enough factor to bring the bank into value territory. Wall Street analyst consensus is that Bank of the Ozarks will earn $2.39 per share this year, and then $2.62 per share in 2014 (that figure implies a forward price-to-earnings ratio of 16). Those valuations don't seem that attractive, assuming that a substantial share of last quarter's numbers came off an acquisition (the megabanks currently trade at 10x forward earnings estimates or lower). The most recent data shows that 13% of the float is held short, so these insiders are going against a good number of market players.

IberiaBank (IBKC) is a similarly sized bank by market capitalization operating in the Gulf Coast region and Arkansas. Its earnings multiples look similar to those of Bank of the Ozarks, with trailing and forward P/Es of 19 and 13, respectively, so we can conclude that the market is at least treating Bank of the Ozarks similarly to its peer. Note that the sell-side is calling for higher earnings growth at IberiaBank, and we can see that in the fourth quarter of 2012 that company's revenue and earnings did grow fairly strongly compared with the fourth quarter of 2011.

Regional banks are a potentially interesting industry given the potential for consolidation (which, in addition to higher margins, might lead to smaller players getting bought out). Bank of the Ozarks has been getting attention from insiders, and that is interesting, but we aren't sure that the stock is cheap enough in terms of trailing earnings to be a good value or that the company can organically grow its earnings that much more than other banks. As a result, larger regional banks such as Regions Financial (RF), or even the megabanks, might be more interesting targets for future research.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Krishnamsetty had no positions in any of the stocks mentioned.

TAGS: Investing | U.S. Equity | Financial Services

More from Financial Services

I'd Like to Introduce You to Janus Henderson, a Friend of My Portfolio

Paul Price
Apr 22, 2021 7:00 AM EDT

JHG offers significant upside potential, plus a 4.4% yield.

The Path of Least Resistance for PennyMac Financial Looks to Be Lower

Bruce Kamich
Apr 20, 2021 10:30 AM EDT

Let's check the charts and indicators.

Will Jack Ma Have to Sell Out of Ant and Alibaba?

Alex Frew McMillan
Apr 19, 2021 10:45 AM EDT

Ant and Alibaba are in talks with Chinese regulators about how the companies can proceed, perhaps without their figurehead.

Metromile Could Bounce but Needs to Develop a Base for a Sustained Advance

Bruce Kamich
Apr 19, 2021 9:07 AM EDT

Indications are that sellers of the auto insurance provider's shares have been more aggressive of late.

Is the Market Wrong on Bank of America? Here's What the Charts Say

Bruce Kamich
Apr 16, 2021 2:21 PM EDT

Let's check in again on BAC after its latest earnings.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 04:17 PM EDT REAL MONEY

    Wednesday on Real Money Pro

    Get-rich quick schemes offer little more than pipe...
  • 11:09 AM EDT GARY BERMAN

    S&P Futures

    FIBOCALL: The S&P futures was off 1.5 %... ...
  • 07:47 AM EDT CHRIS VERSACE

    Positive News for a Cannabis Play

    Good news for this name in the Stocks Under $10 po...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login