Do First Guaranty Bancshares's (NASDAQ:FGBI) Earnings Warrant Your Attention?

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. 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.

So if you're like me, you might be more interested in profitable, growing companies, like First Guaranty Bancshares (NASDAQ:FGBI). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

View our latest analysis for First Guaranty Bancshares

First Guaranty Bancshares's Earnings Per Share Are Growing.

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That makes EPS growth an attractive quality for any company. Impressively, First Guaranty Bancshares has grown EPS by 26% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Not all of First Guaranty Bancshares'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. First Guaranty Bancshares maintained stable EBIT margins over the last year, all while growing revenue 20% to US$103m. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of First Guaranty Bancshares's forecast profits?

Are First Guaranty Bancshares Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. 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.

We do note that, in the last year, insiders sold -US$31k worth of shares. But that's far less than the US$1.0m insiders spend purchasing stock. I find this encouraging because it suggests they are optimistic about the First Guaranty Bancshares's future. Zooming in, we can see that the biggest insider purchase was by Independent Director William Hood for US$184k worth of shares, at about US$17.59 per share.

The good news, alongside the insider buying, for First Guaranty Bancshares bulls is that insiders (collectively) have a meaningful investment in the stock. Given insiders own a small fortune of shares, currently valued at US$88m, they have plenty of motivation to push the business to succeed. That holding amounts to 32% of the stock on issue, thus making insiders influential, and aligned, owners of the business.

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. The cherry on top is that the CEO, Alton Lewis is paid comparatively modestly to CEOs at similar sized companies. I discovered that the median total compensation for the CEOs of companies like First Guaranty Bancshares with market caps between US$100m and US$400m is about US$1.5m.

The CEO of First Guaranty Bancshares only received US$551k in total compensation for the year ending . That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.

Should You Add First Guaranty Bancshares To Your Watchlist?

For growth investors like me, First Guaranty Bancshares's raw rate of earnings growth is a beacon in the night. Not only that, but we can see that insiders both own a lot of, and are buying more, shares in the company. So it's fair to say I think this stock may well deserve a spot on your watchlist. Now, you could try to make up your mind on First Guaranty Bancshares by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of First Guaranty Bancshares, you'll probably love this free list of growing companies that insiders are buying.

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.