I Ran A Stock Scan For Earnings Growth And Capstar Financial Holdings (NASDAQ:CSTR) Passed With Ease

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone 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.

So if you're like me, you might be more interested in profitable, growing companies, like Capstar Financial Holdings (NASDAQ:CSTR). 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.

View our latest analysis for Capstar Financial Holdings

How Fast Is Capstar Financial Holdings Growing Its Earnings Per Share?

In the last three years Capstar Financial Holdings'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 wedge-tailed eagle on the wind, Capstar Financial Holdings's EPS soared from US$1.05 to US$1.63, in just one year. That's a impressive gain of 55%.

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 Capstar Financial Holdings'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 Capstar Financial Holdings's EBIT margins were flat over the last year, revenue grew by a solid 46% to US$124m. 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.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Capstar Financial Holdings EPS 100% free.

Are Capstar Financial Holdings Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

It's good to see Capstar Financial Holdings insiders walking the walk, by spending US$728k on shares in just twelve months. And when you consider that there was no insider selling, you can understand why shareholders might believe that lady luck will grace this business. It is also worth noting that it was Chief Financial Officer Denis Duncan who made the biggest single purchase, worth US$380k, paying US$18.98 per share.

The good news, alongside the insider buying, for Capstar Financial Holdings bulls is that insiders (collectively) have a meaningful investment in the stock. Notably, they have an enormous stake in the company, worth US$110m. Coming in at 22% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. Very encouraging.

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. That's because on our analysis the CEO, Tim Schools, is paid less than the median for similar sized companies. I discovered that the median total compensation for the CEOs of companies like Capstar Financial Holdings with market caps between US$200m and US$800m is about US$1.7m.

The Capstar Financial Holdings CEO received US$960k in compensation for the year ending . 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.

Does Capstar Financial Holdings Deserve A Spot On Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Capstar Financial Holdings's strong EPS growth. 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. What about risks? Every company has them, and we've spotted 2 warning signs for Capstar Financial Holdings you should know about.

The good news is that Capstar Financial Holdings 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.

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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.
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