For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, ‘Long shots almost never pay off.’ While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
So if this idea of high risk and high reward doesn’t suit, you might be more interested in profitable, growing companies, like First Financial (NASDAQ:THFF). While this doesn’t necessarily speak to whether it’s undervalued, the profitability of the business is enough to warrant some appreciation – especially if its growing.
See our latest analysis for First Financial
How Fast Is First Financial Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. We can see that in the last three years First Financial grew its EPS by 14% per year. That growth rate is fairly good, assuming the company can keep it up.
One way to double-check a company’s growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Not all of First Financial’s revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. First Financial maintained stable EBIT margins over the last year, all while growing revenue 7.0% to US$212m. That’s progress.
You can take a look at the company’s revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don’t exist, you can check our visualization of consensus analyst forecasts for First Financial’s future EPS 100% free.
Are First Financial Insiders Aligned With All Shareholders?
It’s said that there’s no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
It’s good to see First Financial insiders walking the walk, by spending US$511k on shares in just twelve months. And when you consider that there was no insider selling, you can understand why shareholders might believe that there are brighter days ahead. It is also worth noting that it was Independent Director Thomas Martin who made the biggest single purchase, worth US$64k, paying US$32.20 per share.
Along with the insider buying, another encouraging sign for First Financial is that insiders, as a group, have a considerable shareholding. To be specific, they have US$16m worth of shares. This considerable investment should help drive long-term value in the business. Even though that’s only about 3.8% of the company, it’s enough money to indicate alignment between the leaders of the business and ordinary shareholders.
Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That’s because First Financial’s CEO, Norm Lowery, is paid at a relatively modest level when compared to other CEOs for companies of this size. Our analysis has discovered that the median total compensation for the CEOs of companies like First Financial with market caps between US$200m and US$800m is about US$2.4m.
The First Financial CEO received US$1.7m in compensation for the year ending December 2022. That comes in below the average for similar sized companies and seems pretty reasonable. While the level of CEO compensation shouldn’t be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Does First Financial Deserve A Spot On Your Watchlist?
As previously touched on, First Financial is a growing business, which is encouraging. Better yet, insiders are significant shareholders, and have been buying more shares. That makes the company a prime candidate for your watchlist – and arguably a research priority. What about risks? Every company has them, and we’ve spotted 2 warning signs for First Financial (of which 1 makes us a bit uncomfortable!) you should know about.
Keen growth investors love to see insider buying. Thankfully, First Financial isn’t the only one. You can see a a free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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