It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like First Business Financial Services (NASDAQ:FBIZ). 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.
How Fast Is First Business Financial Services Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. It certainly is nice to see that First Business Financial Services has managed to grow EPS by 22% per year over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. It's noted that First Business Financial Services' revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. EBIT margins for First Business Financial Services remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 11% to US$127m. That's encouraging news for the company!
In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of First Business Financial Services' forecast profits?
Are First Business Financial Services Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. 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.
Shareholders in First Business Financial Services will be more than happy to see insiders committing themselves to the company, spending US$226k on shares in just twelve months. When you contrast that with the complete lack of sales, it's easy for shareholders to be brimming with joyful expectancy. We also note that it was the Independent Chair of the Board, Gerald Kilcoyne, who made the biggest single acquisition, paying US$165k for shares at about US$32.99 each.
Along with the insider buying, another encouraging sign for First Business Financial Services is that insiders, as a group, have a considerable shareholding. As a matter of fact, their holding is valued at US$22m. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 6.5% of the company; visible skin in the game.
While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because First Business Financial Services' CEO, Corey Chambas, is paid at a relatively modest level when compared to other CEOs for companies of this size. Our analysis has discovered that the median total compensation for the CEOs of companies like First Business Financial Services with market caps between US$200m and US$800m is about US$2.7m.
First Business Financial Services offered total compensation worth US$1.6m to its CEO in the year to December 2021. That is actually below the median for CEO's of similarly sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.
Is First Business Financial Services Worth Keeping An Eye On?
For growth investors, First Business Financial Services' raw rate of earnings growth is a beacon in the night. Not only that, but we can see that insiders both own a lot of, and are buying more shares in the company. These things considered, this is one stock worth watching. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for First Business Financial Services that you should be aware of.
The good news is that First Business Financial Services 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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