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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Lakeland Financial (NASDAQ:LKFN). While profit is not necessarily a social good, it's easy to admire a business than can consistently produce it. 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.
How Fast Is Lakeland Financial Growing?
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. It's no surprise, then, that I like to invest in companies with EPS growth. It certainly is nice to see that Lakeland Financial has managed to grow EPS by 20% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Not all of Lakeland Financial's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. Lakeland Financial maintained stable EBIT margins over the last year, all while growing revenue 11% to US$194m. That's a real positive.
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.
Fortunately, we've got access to analyst forecasts of Lakeland Financial's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Lakeland Financial Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Insiders both bought and sold Lakeland Financial shares in the last year, but the good news is they spent US$42k more buying than they netted selling. When you weigh that up, it is a mild positive, indicating increased alignment between shareholders and management. It is also worth noting that it was Lead Independent Director M. Welch who made the biggest single purchase, worth US$374k, paying US$42.78 per share.
Along with the insider buying, another encouraging sign for Lakeland Financial is that insiders, as a group, have a considerable shareholding. Indeed, they hold US$42m worth of its stock. That's a lot of money, and no small incentive to work hard. Even though that's only about 3.8% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. The cherry on top is that the CEO, David Findlay is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between US$400m and US$1.6b, like Lakeland Financial, the median CEO pay is around US$2.7m.
Lakeland Financial offered total compensation worth US$1.6m to its CEO in the year to December 2018. That seems pretty reasonable, especially given its below the median for similar sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.
Is Lakeland Financial Worth Keeping An Eye On?
You can't deny that Lakeland Financial has grown its earnings per share at a very impressive rate. That's attractive. Not only that, but we can see that insiders both own a lot of, and are buying more, shares in the company. So I do think this is one stock worth watching. Now, you could try to make up your mind on Lakeland Financial by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
As a growth investor I do like to see insider buying. But Lakeland Financial isn't the only one. You can see a a free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.