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Does First Business Financial Services (NASDAQ:FBIZ) Deserve A Spot On Your Watchlist?

Simply Wall St

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

So if you're like me, you might be more interested in profitable, growing 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.

View our latest analysis for First Business Financial Services

How Quickly Is First Business Financial Services 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. First Business Financial Services managed to grow EPS by 9.0% per year, over three years. That's a good rate of growth, if it can be sustained.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). 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. While we note First Business Financial Services's EBIT margins were flat over the last year, revenue grew by a solid 19% to US$83m. That's a real positive.

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.

NasdaqGS:FBIZ Income Statement, August 2nd 2019
NasdaqGS:FBIZ Income Statement, August 2nd 2019

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?

It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. As a result, I'm encouraged by the fact that insiders own First Business Financial Services shares worth a considerable sum. Indeed, they hold US$15m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 7.4% of the company; visible skin in the game.

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. A brief analysis of the CEO compensation suggests they are. For companies with market capitalizations between US$100m and US$400m, like First Business Financial Services, the median CEO pay is around US$1.2m.

The First Business Financial Services CEO received US$900k in compensation for the year ending December 2018. That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn't a huge factor in my view of the company, 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 First Business Financial Services Worth Keeping An Eye On?

One important encouraging feature of First Business Financial Services is that it is growing profits. Earnings growth might be the main game for First Business Financial Services, but the fun does not stop there. Boasting both modest CEO pay and considerable insider ownership, I'd argue this one is worthy of the watchlist, at least. If you think First Business Financial Services might suit your style as an investor, you could go straight to its annual report, or you could first check our discounted cash flow (DCF) valuation for the company.

Although First Business Financial Services certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.