It’s only natural that many investors, especially those who are new to the game, prefer to buy shares in ‘sexy’ stocks with a good story, even if those businesses lose money. But as Peter Lynch said in One Up On Wall Street, ‘Long shots almost never pay off.’
So if you’re like me, you might be more interested in profitable, growing companies, like First Bancorp (NASDAQ:FNLC). While that doesn’t make the shares worth buying at any price, you can’t deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital – but unlike such a sponge they do not always produce something when squeezed.
How Fast Is First Bancorp Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That makes EPS growth an attractive quality for any company. First Bancorp managed to grow EPS by 13% per year, over three years. That’s a pretty good rate, if the company can sustain it.
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 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 First Bancorp’s EBIT margins were flat over the last year, revenue grew by a solid 6.9% to US$65m. That’s progress.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
While it’s always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check First Bancorp’s balance sheet strength, before getting too excited.
Are First Bancorp Insiders Aligned With All Shareholders?
It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. As a result, I’m encouraged by the fact that insiders own First Bancorp shares worth a considerable sum. Indeed, they hold US$22m worth of its stock. That’s a lot of money, and no small incentive to work hard. Those holdings account for over 6.8% of the company; visible skin in the game.
It’s good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. For companies with market capitalizations between US$200m and US$800m, like First Bancorp, the median CEO pay is around US$1.7m.
The First Bancorp CEO received US$858k in compensation for the year ending December 2018. That comes in below the average for similar sized companies, and seems pretty reasonable to me. 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 good governance, more generally.
Is First Bancorp Worth Keeping An Eye On?
One positive for First Bancorp is that it is growing EPS. That’s nice to see. The fact that EPS is growing is a genuine positive for First Bancorp, but the pretty picture gets better than that. Boasting both modest CEO pay and considerable insider ownership, I’d argue this one is worthy of the watchlist, at least. Once you’ve identified a business you like, the next step is to consider what you think it’s worth. And right now is your chance to view our exclusive discounted cashflow valuation of First Bancorp. You might benefit from giving it a glance today.
You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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
If you spot an error that warrants correction, please contact the editor at email@example.com. 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.
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