Here's Why We Think Home Federal Bancorp of Louisiana (NASDAQ:HFBL) Is Well Worth Watching

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. 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. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Home Federal Bancorp of Louisiana (NASDAQ:HFBL). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

Check out our latest analysis for Home Federal Bancorp of Louisiana

Home Federal Bancorp of Louisiana's Earnings Per Share Are Growing

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Home Federal Bancorp of Louisiana managed to grow EPS by 17% per year, over three years. That's a pretty good rate, if the company can sustain it. It's also worth noting that the EPS growth has been assisted by share buybacks, indicating the company is in a position to return capital to shareholders.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Our analysis has highlighted that Home Federal Bancorp of Louisiana's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. Home Federal Bancorp of Louisiana maintained stable EBIT margins over the last year, all while growing revenue 7.1% to US$22m. That's encouraging news for the company!

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.

Since Home Federal Bancorp of Louisiana is no giant, with a market capitalisation of US$51m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Home Federal Bancorp of Louisiana Insiders Aligned With All Shareholders?

It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. So it is good to see that Home Federal Bancorp of Louisiana insiders have a significant amount of capital invested in the stock. As a matter of fact, their holding is valued at US$14m. That shows significant buy-in, and may indicate conviction in the business strategy. As a percentage, this totals to 28% of the shares on issue for the business, an appreciable amount considering the market cap.

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. A brief analysis of the CEO compensation suggests they are. The median total compensation for CEOs of companies similar in size to Home Federal Bancorp of Louisiana, with market caps under US$200m is around US$773k.

The Home Federal Bancorp of Louisiana CEO received US$578k in compensation for the year ending June 2022. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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 Home Federal Bancorp of Louisiana Deserve A Spot On Your Watchlist?

One positive for Home Federal Bancorp of Louisiana is that it is growing EPS. That's nice to see. The growth of EPS may be the eye-catching headline for Home Federal Bancorp of Louisiana, but there's more to bring joy for shareholders. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. It's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Home Federal Bancorp of Louisiana , and understanding these should be part of your investment process.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access 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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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.