With EPS Growth And More, South Plains Financial (NASDAQ:SPFI) Makes An Interesting Case
It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
In contrast to all that, many investors prefer to focus on companies like South Plains Financial (NASDAQ:SPFI), 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 South Plains Financial with the means to add long-term value to shareholders.
View our latest analysis for South Plains Financial
How Quickly Is South Plains Financial Increasing Earnings Per Share?
The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That means EPS growth is considered a real positive by most successful long-term investors. Impressively, South Plains Financial has grown EPS by 22% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. It's noted that South Plains Financial's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. South Plains Financial's EBIT margins are flat but, worryingly, its revenue is actually down. While this may raise concerns, investors should investigate the reasoning behind this.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
Fortunately, we've got access to analyst forecasts of South Plains Financial's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are South Plains Financial Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Over the last 12 months South Plains Financial insiders spent US$178k more buying shares than they received from selling them. Although some people may hesitate due to the share sales, the fact that insiders bought more than they sold, is a positive thing to note. We also note that it was the Independent Director, Noe Valles, who made the biggest single acquisition, paying US$618k for shares at about US$26.88 each.
The good news, alongside the insider buying, for South Plains Financial bulls is that insiders (collectively) have a meaningful investment in the stock. With a whopping US$84m worth of shares as a group, insiders have plenty riding on the company's success. That holding amounts to 17% of the stock on issue, thus making insiders influential owners of the business and aligned with the interests of shareholders.
Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because on our analysis the CEO, Curtis Griffith, is paid less than the median for similar sized companies. The median total compensation for CEOs of companies similar in size to South Plains Financial, with market caps between US$200m and US$800m, is around US$2.1m.
The South Plains Financial CEO received US$1.2m 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. It can also be a sign of a culture of integrity, in a broader sense.
Does South Plains Financial Deserve A Spot On Your Watchlist?
You can't deny that South Plains Financial has grown its earnings per share at a very impressive rate. That's attractive. Furthermore, company insiders have been adding to their significant stake in the company. So it's fair to say that this stock may well deserve a spot on your watchlist. We don't want to rain on the parade too much, but we did also find 2 warning signs for South Plains Financial (1 is potentially serious!) that you need to be mindful of.
The good news is that South Plains Financial is not the only growth stock with insider buying. Here's a list of growth-focused companies in the US with insider buying in the last three months!
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.
