Do Central Federal's (NASDAQ:CFBK) Earnings Warrant Your Attention?
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 completely lacks a track record of revenue and profit. 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 Central Federal (NASDAQ:CFBK). 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.
See our latest analysis for Central Federal
How Quickly Is Central Federal Increasing Earnings Per Share?
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. Central Federal managed to grow EPS by 6.5% per year, over three years. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.
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 Central Federal's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. While we note Central Federal's EBIT margins were flat over the last year, revenue grew by a solid 51% to US$26m. That's a real positive.
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.
Since Central Federal is no giant, with a market capitalization of US$55m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Central Federal Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. 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.
Not only did Central Federal insiders refrain from selling stock during the year, but they also spent US$124k buying it. That puts the company in a nice light, as it makes me think its leaders are feeling confident. It is also worth noting that it was Director David Royer who made the biggest single purchase, worth US$67k, paying US$13.42 per share.
Should You Add Central Federal To Your Watchlist?
As I already mentioned, Central Federal is a growing business, which is what I like to see. Not every business can grow its EPS, but Central Federal certainly can. The gravy on the mushroom pie is the insider buying, which has me tasting potential opportunity; one for the watchlist, I'd posit. Of course, just because Central Federal is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
As a growth investor I do like to see insider buying. But Central Federal 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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