Should You Be Adding BayFirst Financial (NASDAQ:BAFN) To Your Watchlist Today?

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. 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.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in BayFirst Financial (NASDAQ:BAFN). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

View our latest analysis for BayFirst Financial

BayFirst Financial's Improving Profits

Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So it's no surprise that some investors are more inclined to invest in profitable businesses. Like a firecracker arcing through the night sky, BayFirst Financial's EPS shot from US$2.44 to US$6.64, over the last year. You don't see 172% year-on-year growth like that, very often. The best case scenario? That the business has hit a true inflection point.

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 BayFirst 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. While we note BayFirst Financial's EBIT margins were flat over the last year, revenue grew by a solid 78% to US$166m. 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.

BayFirst Financial isn't a huge company, given its market capitalization of US$95m. That makes it extra important to check on its balance sheet strength.

Are BayFirst Financial 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, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

In the last twelve months BayFirst Financial insiders spent US$7.7k on stock; good news for shareholders. This might not be a huge sum, but it's well worth noting anyway, given the complete lack of selling.

Along with the insider buying, another encouraging sign for BayFirst Financial is that insiders, as a group, have a considerable shareholding. Indeed, they hold US$31m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 33% of the company, demonstrating a degree of high-level alignment with shareholders.

Is BayFirst Financial Worth Keeping An Eye On?

BayFirst Financial's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. What's more insiders own a significant stake in the company and have been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe BayFirst Financial deserves timely attention. However, before you get too excited we've discovered 4 warning signs for BayFirst Financial that you should be aware of.

The good news is that BayFirst 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.

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

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.