If EPS Growth Is Important To You, Summit Financial Group (NASDAQ:SMMF) Presents An Opportunity

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Summit Financial Group (NASDAQ:SMMF). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

Check out our latest analysis for Summit Financial Group

How Quickly Is Summit Financial Group Increasing Earnings Per Share?

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) outcomes. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Shareholders will be happy to know that Summit Financial Group's EPS has grown 23% each year, compound, over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Not all of Summit Financial Group's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. EBIT margins for Summit Financial Group remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 13% to US$145m. That's encouraging news for the company!

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

Since Summit Financial Group is no giant, with a market capitalisation of US$268m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Summit Financial Group Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Despite US$5.2k worth of sales, Summit Financial Group insiders have overwhelmingly been buying the stock, spending US$654k on purchases in the last twelve months. This overall confidence in the company at current the valuation signals their optimism. It is also worth noting that it was Independent Director Jason Kitzmiller who made the biggest single purchase, worth US$199k, paying US$21.75 per share.

Along with the insider buying, another encouraging sign for Summit Financial Group is that insiders, as a group, have a considerable shareholding. To be specific, they have US$39m worth of shares. That's a lot of money, and no small incentive to work hard. That amounts to 15% of the company, demonstrating a degree of high-level alignment with shareholders.

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. The cherry on top is that the CEO, Charlie Maddy is paid comparatively modestly to CEOs at similar sized companies. Our analysis has discovered that the median total compensation for the CEOs of companies like Summit Financial Group with market caps between US$100m and US$400m is about US$1.7m.

Summit Financial Group offered total compensation worth US$1.0m to its CEO in the year to December 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 Summit Financial Group Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Summit Financial Group's strong EPS growth. 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 that this stock may well deserve a spot on your watchlist. What about risks? Every company has them, and we've spotted 1 warning sign for Summit Financial Group you should know about.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Summit Financial Group, 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.

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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.