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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like CF Bankshares (NASDAQ:CFBK). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
CF Bankshares's Improving Profits
Over the last three years, CF Bankshares 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. Thus, it makes sense to focus on more recent growth rates, instead. Like a firecracker arcing through the night sky, CF Bankshares's EPS shot from US$2.05 to US$4.53, over the last year. Year on year growth of 121% is certainly a sight to behold. The best case scenario? That the business has hit a true inflection point.
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 CF Bankshares's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. CF Bankshares maintained stable EBIT margins over the last year, all while growing revenue 130% to US$77m. That's a real positive.
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
CF Bankshares isn't a huge company, given its market capitalization of US$132m. That makes it extra important to check on its balance sheet strength.
Are CF Bankshares Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
We note that CF Bankshares insiders spent US$129k on stock, over the last year; in contrast, we didn't see any selling. That puts the company in a nice light, as it makes me think its leaders are feeling confident. Zooming in, we can see that the biggest insider purchase was by Independent Director David Royer for US$74k worth of shares, at about US$10.50 per share.
The good news, alongside the insider buying, for CF Bankshares bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold US$16m worth of its stock. That's a lot of money, and no small incentive to work hard. Those holdings account for over 12% of the company; visible skin in the game.
Should You Add CF Bankshares To Your Watchlist?
CF Bankshares's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. Just as heartening; insiders both own and are buying more stock. Because of the potential that it has reached an inflection point, I'd suggest CF Bankshares belongs on the top of your watchlist. Even so, be aware that CF Bankshares is showing 3 warning signs in our investment analysis , and 2 of those are a bit concerning...
The good news is that CF Bankshares is not the only growth stock with insider buying. Here's a list of them... 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.
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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