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Here's Why We Think Village Bank and Trust Financial (NASDAQ:VBFC) Is Well Worth Watching

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. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Village Bank and Trust Financial (NASDAQ:VBFC). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

View our latest analysis for Village Bank and Trust Financial

How Fast Is Village Bank and Trust Financial Growing Its Earnings Per Share?

In the last three years Village Bank and Trust Financial's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. Thus, it makes sense to focus on more recent growth rates, instead. Like a falcon taking flight, Village Bank and Trust Financial's EPS soared from US$2.80 to US$4.68, over the last year. That's a impressive gain of 67%.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). I note that Village Bank and Trust Financial's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Village Bank and Trust Financial maintained stable EBIT margins over the last year, all while growing revenue 13% to US$29m. That's a real positive.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

earnings-and-revenue-history
earnings-and-revenue-history

Since Village Bank and Trust Financial is no giant, with a market capitalization of US$45m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Village Bank and Trust 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Any way you look at it Village Bank and Trust Financial shareholders can gain quiet confidence from the fact that insiders shelled out US$796k to buy stock, over the last year. When you contrast that with the complete lack of sales, it's easy for shareholders to brim with joyful expectancy. Zooming in, we can see that the biggest insider purchase was by Kenneth Lehman for US$293k worth of shares, at about US$38.20 per share.

On top of the insider buying, we can also see that Village Bank and Trust Financial insiders own a large chunk of the company. In fact, they own 61% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. In terms of absolute value, insiders have US$27m invested in the business, using the current share price. That's nothing to sneeze at!

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. That's because on our analysis the CEO, Jay Hendricks, is paid less than the median for similar sized companies. I discovered that the median total compensation for the CEOs of companies like Village Bank and Trust Financial with market caps under US$200m is about US$562k.

The Village Bank and Trust Financial CEO received US$456k in compensation for the year ending . That comes in below the average for similar sized companies, and seems pretty reasonable to me. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.

Is Village Bank and Trust Financial Worth Keeping An Eye On?

For growth investors like me, Village Bank and Trust Financial's raw rate of earnings growth is a beacon in the night. On top of that, insiders own a significant stake in the company and have been buying more shares. So I do think this is one stock worth watching. You still need to take note of risks, for example - Village Bank and Trust Financial has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

The good news is that Village Bank and Trust Financial 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.

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