Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like First Business Financial Services (NASDAQ:FBIZ). Now, I’m not saying that the stock is necessarily undervalued today; but I can’t shake an appreciation for the profitability of the business itself. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
First Business Financial Services’s Earnings Per Share Are Growing.
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. It’s no surprise, then, that I like to invest in companies with EPS growth. It certainly is nice to see that First Business Financial Services has managed to grow EPS by 25% per year over three years. If the company can sustain that sort of growth, we’d expect shareholders to come away winners.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company’s growth. I note that First Business Financial Services’s revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. First Business Financial Services maintained stable EBIT margins over the last year, all while growing revenue 9.0% to US$95m. That’s progress.
You can take a look at the company’s revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
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 First Business Financial Services’s future profits.
Are First Business Financial Services Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don’t know the exact thinking behind their acquisitions.
It’s good to see First Business Financial Services insiders walking the walk, by spending US$368k on shares in just twelve months. When you contrast that with the complete lack of sales, it’s easy for shareholders to brim with joyful expectancy. Zooming in, we can see that the biggest insider purchase was by Independent Chair of the Board Gerald Kilcoyne for US$100k worth of shares, at about US$14.75 per share.
On top of the insider buying, it’s good to see that First Business Financial Services insiders have a valuable investment in the business. To be specific, they have US$14m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 6.0% of the company; visible skin in the game.
Should You Add First Business Financial Services To Your Watchlist?
You can’t deny that First Business Financial Services has grown its earnings per share at a very impressive rate. That’s attractive. Not only that, but we can see that insiders both own a lot of, and are buying more, shares in the company. So it’s fair to say I think this stock may well deserve a spot on your watchlist. It’s still necessary to consider the ever-present spectre of investment risk. We’ve identified 1 warning sign with First Business Financial Services , and understanding this should be part of your investment process.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of First Business Financial Services, you’ll probably love this free list of growing companies that insiders are buying.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
This article by Simply Wall St is general in nature. 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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