With EPS growth and more, financial institutions (NASDAQ: FISI) are interesting
For newbies, it might seem like a good idea (and an exciting prospect) to buy a business that tells a good story to investors, even if it lacks a history of revenue and profit altogether. But the reality is that when a business loses money every year, for long enough, its investors will usually take their share of those losses.
So if you’re like me, you might be more interested in profitable and growing businesses like Financial institutions (NASDAQ: FISI). Now, I’m not saying the title is necessarily undervalued today; but I cannot shake an appreciation of the profitability of the company itself. By comparison, loss-making companies act like a sponge for capital – but unlike such a sponge, they don’t always produce something when in a hurry.
How fast are financial institutions growing?
The market is a short-term voting machine, but a long-term weighing machine, so the stock price eventually follows earnings per share (EPS). This means that growing EPS is seen as a real benefit by most successful long-term investors. It’s certainly nice to see that financial institutions have managed to increase their EPS by 19% per year over three years. As a general rule, we would say that if a company can follow this kind of growth, shareholders will be smiling.
A close look at growth in income and profit margins before interest and taxes (EBIT) can help inform a vision on the sustainability of recent earnings growth. I note that the income of financial institutions operations was lower than its turnover for the last twelve months, which could skew my analysis of its margins. Financial institutions have maintained stable EBIT margins over the past year, while increasing revenues by 25% to US $ 191 million. Itâs really positive.
The graph below shows how the company’s bottom line has progressed over time. For more details, click on the image.
NasdaqGS: FISI Revenue and Revenue History October 10, 2021
In investing, as in life, the future matters more than the past. So why not watch this free interactive visualization of financial institutions forecast benefits?
Are financial institution insiders aligned with all shareholders?
Like staying on the lookout, surveying the horizon at sunrise, insider buying, for some investors, brings joy. This view is based on the possibility that stock purchases signal an uptrend on behalf of the buyer. Small purchases aren’t always indicative of conviction, however, and insiders don’t always make the right choices.
Insiders of financial institutions not only refrained from selling shares during the year, but they also spent US $ 101,000 to buy it. It’s nice to see, as it suggests that insiders are bullish. We also note that it was the independent director, Andrew Dorn, who made the largest acquisition, paying US $ 35,000 for shares at approximately US $ 32.05 each.
It’s reassuring that insiders of financial institutions buy the stocks, but that’s not the only reason to believe that management is fair to shareholders. Concretely, the CEO is paid fairly reasonably for a company of this size. For companies with a market capitalization between $ 200 million and $ 800 million, such as financial institutions, the median CEO compensation is around $ 1.7 million.
The CEO of financial institutions received US $ 1.5 million in compensation for the fiscal year ended. Sounds reasonable enough, especially considering it is below the median for companies of a similar size. Although the level of CEO compensation is not a big factor in my view of the company, modest compensation is positive because it suggests that the board has the interests of shareholders in mind. It can also be a sign of a culture of integrity, in the broad sense.
Are Financial Institutions Worth Watching?
Given my belief that the stock price tracks earnings per share, you can easily imagine what I think about the strong EPS growth of financial institutions. And that’s not the only bright spot either. We have both insider buying and reasonable compensation to consider. My message from this quick overview is that, yes, this stock deserves further study. However, be aware that financial institutions show 1 warning sign in our investment analysis , you must know…
The good news is that financial institutions aren’t the only growth stocks buying from insiders. Here’s a list of them … with insider buys over the past three months!
Please note that the insider trading discussed in this article refers to reportable trades in the relevant jurisdiction.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.