With EPS Growth And More, Security National Financial (NASDAQ:SNFC.A) Is Interesting

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 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.

In contrast to all that, I prefer to spend time on companies like Security National Financial (NASDAQ:SNFC.A), which has not only revenues, but also profits. 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. 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 Security National Financial

How Fast Is Security National Financial Growing Its Earnings Per Share?

In business, though not in life, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS). So like a ray of sunshine through a gap in the clouds, improving EPS is considered a good sign. It is therefore awe-striking that Security National Financial's EPS went from US$0.46 to US$2.84 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company. Could this be a sign that the business has reached an inflection point?

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). I note that Security National Financial's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. The good news is that Security National Financial is growing revenues, and EBIT margins improved by 11.8 percentage points to 18%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

Security National Financial isn't a huge company, given its market capitalization of US$178m. That makes it extra important to check on its balance sheet strength.

Are Security National Financial Insiders Aligned With All Shareholders?

It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. So it is good to see that Security National Financial insiders have a significant amount of capital invested in the stock. Indeed, they hold US$13m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 7.3% of the company; visible skin in the game.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, I'd say they are indeed. For companies with market capitalizations between US$100m and US$400m, like Security National Financial, the median CEO pay is around US$940k.

The Security National Financial CEO received US$708k in compensation for the year ending . That seems pretty reasonable, especially given its 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. I'd also argue reasonable pay levels attest to good decision making more generally.

Is Security National Financial Worth Keeping An Eye On?

Security National Financial's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The strong EPS improvement suggests the businesses is humming along. Big growth can make big winners, so I do think Security National Financial is worth considering carefully. Still, you should learn about the 3 warning signs we've spotted with Security National Financial (including 1 which doesn't sit too well with us) .

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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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