Does First Capital (NASDAQ:FCAP) Deserve A Spot On Your Watchlist?
Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
In contrast to all that, many investors prefer to focus on companies like First Capital (NASDAQ:FCAP), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide First Capital with the means to add long-term value to shareholders.
View our latest analysis for First Capital
How Quickly Is First Capital Increasing Earnings Per Share?
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. Over the last three years, First Capital has grown EPS by 8.4% per year. That growth rate is fairly good, assuming the company can keep it up.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. It's noted that First Capital's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. While we note First Capital achieved similar EBIT margins to last year, revenue grew by a solid 9.6% to US$41m. 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.
First Capital isn't a huge company, given its market capitalisation of US$101m. That makes it extra important to check on its balance sheet strength.
Are First Capital 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. 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 Capital insiders walking the walk, by spending US$268k on shares in just twelve months. This, combined with the lack of sales from insiders, should be a great signal for shareholders in what's to come. We also note that it was the company insider, Dennis Huber, who made the biggest single acquisition, paying US$136k for shares at about US$27.25 each.
It's commendable to see that insiders have been buying shares in First Capital, but there is more evidence of shareholder friendly management. Namely, First Capital has a very reasonable level of CEO pay. Our analysis has discovered that the median total compensation for the CEOs of companies like First Capital with market caps under US$200m is about US$741k.
The CEO of First Capital only received US$342k in total compensation for the year ending December 2022. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Is First Capital Worth Keeping An Eye On?
One important encouraging feature of First Capital is that it is growing profits. And there's more to love too, with modest CEO remuneration and insider buying interest continuing the positives for the company. If these factors aren't enough to secure First Capital a spot on the watchlist, then it certainly warrants a closer look at the very least. Now, you could try to make up your mind on First Capital by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
Keen growth investors love to see insider buying. Thankfully, First Capital 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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