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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like 1st Constitution Bancorp (NASDAQ:FCCY). While profit is not necessarily a social good, it’s easy to admire a business than can consistently produce it. 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 1st Constitution Bancorp Growing?
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. It’s no surprise, then, that I like to invest in companies with EPS growth. Over the last three years, 1st Constitution Bancorp has grown EPS by 9.7% per year. That growth rate is fairly good, assuming the company can keep it up.
One way to double-check a company’s growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. I note that 1st Constitution Bancorp’s revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. While we note 1st Constitution Bancorp’s EBIT margins were flat over the last year, revenue grew by a solid 15% to US$50m. That’s a real positive.
The chart below shows how the company’s bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
Fortunately, we’ve got access to analyst forecasts of 1st Constitution 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 1st Constitution 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. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don’t know the exact thinking behind their acquisitions.
While 1st Constitution Bancorp insiders did net -US$81.9k selling stock over the last year, they invested US$285k, a much higher figure. On balance, to me, this signals their optimism. Zooming in, we can see that the biggest insider purchase was by Director James Aaron for US$111k worth of shares, at about US$22.27 per share.
The good news, alongside the insider buying, for 1st Constitution Bancorp bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold US$22m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 14% of the company, demonstrating a degree of high-level alignment with shareholders.
Is 1st Constitution Bancorp Worth Keeping An Eye On?
As I already mentioned, 1st Constitution Bancorp is a growing business, which is what I like to see. On top of that, we’ve seen insiders buying shares even though they already own plenty. That makes the company a prime candidate for my watchlist – and arguably a research priority. 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 1st Constitution Bancorp. You might benefit from giving it a glance today.
As a growth investor I do like to see insider buying. But 1st Constitution 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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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.