Does Federal Agricultural Mortgage (NYSE:AGM) Deserve A Spot On Your Watchlist?

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Federal Agricultural Mortgage (NYSE:AGM). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Federal Agricultural Mortgage with the means to add long-term value to shareholders.

Check out our latest analysis for Federal Agricultural Mortgage

How Quickly Is Federal Agricultural Mortgage Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, Federal Agricultural Mortgage has grown EPS by 12% per year. That's a good rate of growth, if it can be sustained.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. It's noted that Federal Agricultural Mortgage's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. EBIT margins for Federal Agricultural Mortgage remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 28% to US$283m. 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.

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Federal Agricultural Mortgage's balance sheet strength, before getting too excited.

Are Federal Agricultural Mortgage Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

While Federal Agricultural Mortgage insiders did net US$70k selling stock over the last year, they invested US$336k, a much higher figure. You could argue that level of buying implies genuine confidence in the business. We also note that it was the Independent Director, Robert Sexton, who made the biggest single acquisition, paying US$233k for shares at about US$117 each.

Along with the insider buying, another encouraging sign for Federal Agricultural Mortgage is that insiders, as a group, have a considerable shareholding. To be specific, they have US$17m worth of shares. That's a lot of money, and no small incentive to work hard. Despite being just 1.4% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because Federal Agricultural Mortgage's CEO, Brad Nordholm, is paid at a relatively modest level when compared to other CEOs for companies of this size. The median total compensation for CEOs of companies similar in size to Federal Agricultural Mortgage, with market caps between US$400m and US$1.6b, is around US$3.9m.

Federal Agricultural Mortgage offered total compensation worth US$3.2m to its CEO in the year to December 2021. That is actually below the median for CEO's of similarly 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 a culture of integrity, in a broader sense.

Should You Add Federal Agricultural Mortgage To Your Watchlist?

As previously touched on, Federal Agricultural Mortgage is a growing business, which is encouraging. In addition, insiders have been busy adding to their sizeable holdings in the company. That makes the company a prime candidate for your watchlist - and arguably a research priority. Before you take the next step you should know about the 1 warning sign for Federal Agricultural Mortgage that we have uncovered.

The good news is that Federal Agricultural Mortgage is not the only growth stock with insider buying. Here's a list of them... 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.

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.