With EPS Growth And More, Summit Financial Group (NASDAQ:SMMF) Is Interesting
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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
So if you're like me, you might be more interested in profitable, growing companies, like Summit Financial Group (NASDAQ:SMMF). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
View our latest analysis for Summit Financial Group
How Quickly Is Summit Financial Group Increasing Earnings Per Share?
As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. As a tree reaches steadily for the sky, Summit Financial Group's EPS has grown 18% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.
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 Summit Financial Group'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 Summit Financial Group's EBIT margins were flat over the last year, revenue grew by a solid 17% to US$129m. 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.
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 Summit Financial Group's future profits.
Are Summit Financial Group Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
In the last year insider at Summit Financial Group were both selling and buying shares; but happily, as a group they spent US$182k more on stock, than they netted from selling it. On balance, that's a good sign. We also note that it was the Independent Director, Gary Hinkle, who made the biggest single acquisition, paying US$150k for shares at about US$24.15 each.
Along with the insider buying, another encouraging sign for Summit Financial Group is that insiders, as a group, have a considerable shareholding. To be specific, they have US$44m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 13% of the company; visible skin in the game.
While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. That's because on our analysis the CEO, Charlie Maddy, is paid less than the median for similar sized companies. I discovered that the median total compensation for the CEOs of companies like Summit Financial Group with market caps between US$200m and US$800m is about US$2.6m.
Summit Financial Group offered total compensation worth US$1.3m to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.
Is Summit Financial Group Worth Keeping An Eye On?
You can't deny that Summit Financial Group has grown its earnings per share at a very impressive rate. That's attractive. Not only that, but we can see that insiders both own a lot of, and are buying more, shares in the company. So it's fair to say I think this stock may well deserve a spot on your watchlist. However, before you get too excited we've discovered 1 warning sign for Summit Financial Group that you should be aware of.
As a growth investor I do like to see insider buying. But Summit Financial Group 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.
