Here's Why We Think Village Bank and Trust Financial (NASDAQ:VBFC) Is Well Worth Watching

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone 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 the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Village Bank and Trust Financial (NASDAQ:VBFC). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. 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 Village Bank and Trust Financial

Village Bank and Trust Financial's Improving Profits

Over the last three years, Village Bank and Trust Financial has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. As a result, I'll zoom in on growth over the last year, instead. Like a firecracker arcing through the night sky, Village Bank and Trust Financial's EPS shot from US$3.15 to US$7.90, over the last year. Year on year growth of 151% is certainly a sight to behold. The best case scenario? That the business has hit a true 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 Village Bank and Trust Financial'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 Village Bank and Trust Financial's EBIT margins were flat over the last year, revenue grew by a solid 43% to US$37m. 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.

Since Village Bank and Trust Financial is no giant, with a market capitalization of US$68m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Village Bank and Trust Financial 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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Any way you look at it Village Bank and Trust Financial shareholders can gain quiet confidence from the fact that insiders shelled out US$549k to buy stock, over the last year. And when you consider that there was no insider selling, you can understand why shareholders might believe that lady luck will grace this business. It is also worth noting that it was Kenneth Lehman who made the biggest single purchase, worth US$216k, paying US$28.80 per share.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Village Bank and Trust Financial insiders own more than a third of the company. Indeed, with a collective holding of 62%, company insiders are in control and have plenty of capital behind the venture. This makes me think they will be incentivised to plan for the long term - something I like to see. With that sort of holding, insiders have about US$42m riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!

Is Village Bank and Trust Financial Worth Keeping An Eye On?

Village Bank and Trust Financial's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. What's more insiders own a significant stake in the company and have been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Village Bank and Trust Financial deserves timely attention. What about risks? Every company has them, and we've spotted 1 warning sign for Village Bank and Trust Financial you should know about.

As a growth investor I do like to see insider buying. But Village Bank and Trust Financial 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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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. 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.
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