For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Republic First Bancorp (NASDAQ:FRBK). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. 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 Quickly Is Republic First Bancorp Increasing Earnings Per Share?
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Impressively, Republic First Bancorp has grown EPS by 35% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Not all of Republic First Bancorp'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. While we note Republic First Bancorp's EBIT margins were flat over the last year, revenue grew by a solid 26% to US$156m. 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.
Fortunately, we've got access to analyst forecasts of Republic First Bancorp's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Republic First Bancorp Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. 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.
We do note that, in the last year, insiders sold -US$640k worth of shares. But that's far less than the US$19m insiders spend purchasing stock. This makes me even more interested in Republic First Bancorp because it suggests that those who understand the company best, are optimistic. It is also worth noting that it was Philip Norcross who made the biggest single purchase, worth US$12m, paying US$4.38 per share.
Along with the insider buying, another encouraging sign for Republic First Bancorp is that insiders, as a group, have a considerable shareholding. Indeed, they hold US$36m worth of its stock. That's a lot of money, and no small incentive to work hard. That amounts to 11% of the company, demonstrating a degree of high-level alignment with shareholders.
While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. The cherry on top is that the CEO, Vernon Hill is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between US$200m and US$800m, like Republic First Bancorp, the median CEO pay is around US$1.7m.
The Republic First Bancorp CEO received total compensation of just US$352k in the year to . That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. 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 good governance, more generally.
Is Republic First Bancorp Worth Keeping An Eye On?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Republic First Bancorp's strong EPS growth. Not only that, but we can see that insiders both own a lot of, and are buying more, shares in the company. So it's fair to say I think this stock may well deserve a spot on your watchlist. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Republic First Bancorp that you should be aware of.
As a growth investor I do like to see insider buying. But Republic First Bancorp 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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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.