Here's Why We Think First National Financial (TSE:FN) Is Well Worth Watching
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. 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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in First National Financial (TSE:FN). 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 First National Financial
How Fast Is First National Financial Growing?
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. We can see that in the last three years First National Financial grew its EPS by 14% per year. That growth rate is fairly good, assuming the company can keep it up.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Our analysis has highlighted that First National Financial's 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. While we note First National Financial achieved similar EBIT margins to last year, revenue grew by a solid 2.4% to CA$741m. That's progress.
The chart below shows how the company's bottom and top lines have progressed 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 National Financial's forecast profits?
Are First National Financial Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. 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.
The real kicker here is that First National Financial insiders spent a staggering CA$24m on acquiring shares in just one year, without single share being sold in the meantime. Knowing this, First National Financial will have have all eyes on them in anticipation for the what could happen in the near future. It is also worth noting that it was Co-Founder & Executive Chairman Stephen J. Smith who made the biggest single purchase, worth CA$9.8m, paying CA$33.06 per share.
These recent buys aren't the only encouraging sign for shareholders, as a look at the shareholder registry for First National Financial will reveal that insiders own a significant piece of the pie. In fact, they own 38% of the shares, making insiders a very influential shareholder group. Those who are comforted by solid insider ownership like this should be happy, as it implies that those running the business are genuinely motivated to create shareholder value. at the current share price. This is an incredible endorsement from them.
While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because on our analysis the CEO, Jason Ellis, is paid less than the median for similar sized companies. For companies with market capitalisations between CA$1.3b and CA$4.3b, like First National Financial, the median CEO pay is around CA$2.9m.
The First National Financial CEO received total compensation of just CA$1.4m in the year to December 2022. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.
Should You Add First National Financial To Your Watchlist?
As previously touched on, First National Financial is a growing business, which is encouraging. On top of that, we've seen insiders buying shares even though they already own plenty. That should do plenty in prompting budding investors to undertake a bit more research - or even adding the company to their watchlists. You should always think about risks though. Case in point, we've spotted 1 warning sign for First National Financial you should be aware of.
Keen growth investors love to see insider buying. Thankfully, First National Financial isn't the only one. You can see a a curated list of Canadian companies which have exhibited consistent growth accompanied by recent insider buying.
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.
