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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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in CF Bankshares (NASDAQ:CFBK). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
How Fast Is CF Bankshares Growing Its Earnings Per Share?
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$1.53 to US$3.00, over the last year. Year on year growth of 96% is certainly a sight to behold. That could be a sign that the business has reached 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. While we note CF Bankshares's EBIT margins were flat over the last year, revenue grew by a solid 100% to US$51m. That's a real positive.
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 CF Bankshares is no giant, with a market capitalization of US$108m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are CF Bankshares Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Not only did CF Bankshares insiders refrain from selling stock during the year, but they also spent US$113k 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, David Royer, who made the biggest single acquisition, paying US$74k for shares at about US$10.50 each.
Is CF Bankshares Worth Keeping An Eye On?
CF Bankshares's earnings have taken off like any random crypto-currency did, back in 2017. Growth investors should find it difficult to look past that strong EPS move. And indeed, it could be a sign that the business is at an inflection point. If that's the case, you may regret neglecting to put CF Bankshares on your watchlist. Don't forget that there may still be risks. For instance, we've identified 3 warning signs for CF Bankshares (2 are potentially serious) you should be aware of.
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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