Here's Why We Think Enterprise Financial Services (NASDAQ:EFSC) Might Deserve Your Attention Today
Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. 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. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
In contrast to all that, many investors prefer to focus on companies like Enterprise Financial Services (NASDAQ:EFSC), which has not only revenues, but also profits. Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
View our latest analysis for Enterprise Financial Services
Enterprise Financial Services' Earnings Per Share Are Growing
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. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Shareholders will be happy to know that Enterprise Financial Services' EPS has grown 25% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Our analysis has highlighted that Enterprise Financial Services' revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. EBIT margins for Enterprise Financial Services remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 19% to US$598m. That's encouraging news for the company!
In the chart below, you can see how the company has grown earnings and revenue, over time. 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 Enterprise Financial Services' future profits.
Are Enterprise Financial Services Insiders Aligned With All Shareholders?
It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. So it is good to see that Enterprise Financial Services insiders have a significant amount of capital invested in the stock. Holding US$73m worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. This would indicate that the goals of shareholders and management are one and the same.
While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. A brief analysis of the CEO compensation suggests they are. The median total compensation for CEOs of companies similar in size to Enterprise Financial Services, with market caps between US$1.0b and US$3.2b, is around US$5.0m.
The Enterprise Financial Services CEO received US$4.2m in compensation for the year ending December 2022. That is actually below the median for CEO's of similarly sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Does Enterprise Financial Services Deserve A Spot On Your Watchlist?
If you believe that share price follows earnings per share you should definitely be delving further into Enterprise Financial Services' strong EPS growth. If you still have your doubts, remember too that company insiders have a considerable investment aligning themselves with the shareholders and CEO pay is quite modest compared to similarly sized companiess. This may only be a fast rundown, but the key takeaway is that Enterprise Financial Services is worth keeping an eye on. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Enterprise Financial Services that you should be aware of.
There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of companies which have demonstrated growth backed by recent insider purchases.
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.
