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Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. 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.
In contrast to all that, I prefer to spend time on companies like FFBW (NASDAQ:FFBW), which has not only revenues, but also profits. 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. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
FFBW's Improving Profits
Over the last three years, FFBW has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. As a result, I'll zoom in on growth over the last year, instead. Like the last firework on New Year's Eve accelerating into the sky, FFBW's EPS shot from US$0.17 to US$0.31, over the last year. Year on year growth of 79% is certainly a sight to behold.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. I note that FFBW's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. FFBW maintained stable EBIT margins over the last year, all while growing revenue 13% to US$10m. That's progress.
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
Since FFBW is no giant, with a market capitalization of US$81m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are FFBW Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Not only did FFBW insiders refrain from selling stock during the year, but they also spent US$106k buying it. That puts the company in a nice light, as it makes me think its leaders are feeling confident. We also note that it was the Independent Director, Christine Specht, who made the biggest single acquisition, paying US$30k for shares at about US$10.15 each.
I do like that insiders have been buying shares in FFBW, but there is more evidence of shareholder friendly management. I refer to the very reasonable level of CEO pay. For companies with market capitalizations under US$200m, like FFBW, the median CEO pay is around US$512k.
The FFBW CEO received US$332k in compensation for the year ending . 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. I'd also argue reasonable pay levels attest to good decision making more generally.
Is FFBW Worth Keeping An Eye On?
FFBW's earnings per share have taken off like a rocket aimed right at the moon. The company can also boast of insider buying, and reasonable remuneration for the CEO. It could be that FFBW is at an inflection point, given the EPS growth. If so, then it the potential for further gains probably merit a spot on your watchlist. However, before you get too excited we've discovered 1 warning sign for FFBW that you should be aware of.
As a growth investor I do like to see insider buying. But FFBW 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.
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. 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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