Should You Be Adding 1st Source (NASDAQ:SRCE) To Your Watchlist Today?
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.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in 1st Source (NASDAQ:SRCE). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide 1st Source with the means to add long-term value to shareholders.
Check out our latest analysis for 1st Source
How Quickly Is 1st Source Increasing Earnings Per Share?
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. We can see that in the last three years 1st Source 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. It's noted that 1st Source's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. 1st Source maintained stable EBIT margins over the last year, all while growing revenue 3.2% to US$351m. That's progress.
The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
Fortunately, we've got access to analyst forecasts of 1st Source's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are 1st Source Insiders Aligned With All Shareholders?
Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Not only did 1st Source insiders refrain from selling stock during the year, but they also spent US$107k buying it. That's nice to see, because it suggests insiders are optimistic. We also note that it was the Independent Director, Daniel Fitzpatrick, who made the biggest single acquisition, paying US$45k for shares at about US$45.21 each.
Along with the insider buying, another encouraging sign for 1st Source is that insiders, as a group, have a considerable shareholding. Notably, they have an enviable stake in the company, worth US$340m. This totals to 32% of shares in the company. Enough to lead management's decision making process down a path that brings the most benefit to shareholders. Very encouraging.
Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. The cherry on top is that the CEO, Chris Murphy is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalisations between US$400m and US$1.6b, like 1st Source, the median CEO pay is around US$3.8m.
1st Source's CEO took home a total compensation package worth US$2.4m in the year leading up to December 2022. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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. It can also be a sign of good governance, more generally.
Is 1st Source Worth Keeping An Eye On?
One positive for 1st Source is that it is growing EPS. That's nice to see. On top of that, we've seen insiders buying shares even though they already own plenty. That makes the company a prime candidate for your watchlist - and arguably a research priority. We should say that we've discovered 1 warning sign for 1st Source that you should be aware of before investing here.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of 1st Source, 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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