With EPS Growth And More, ServisFirst Bancshares (NYSE:SFBS) Makes An Interesting Case

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 currently lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

In contrast to all that, many investors prefer to focus on companies like ServisFirst Bancshares (NYSE:SFBS), which has not only revenues, but also profits. 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 ServisFirst Bancshares

How Fast Is ServisFirst Bancshares Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Shareholders will be happy to know that ServisFirst Bancshares' EPS has grown 19% each year, compound, over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

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. Not all of ServisFirst Bancshares' 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. While we note ServisFirst Bancshares achieved similar EBIT margins to last year, revenue grew by a solid 18% to US$459m. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

Fortunately, we've got access to analyst forecasts of ServisFirst Bancshares' future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are ServisFirst Bancshares 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

While ServisFirst Bancshares insiders did net US$279k selling stock over the last year, they invested US$779k, a much higher figure. An optimistic sign for those with ServisFirst Bancshares in their watchlist. We also note that it was the Independent Lead Director, James Filler, who made the biggest single acquisition, paying US$281k for shares at about US$56.28 each.

The good news, alongside the insider buying, for ServisFirst Bancshares bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$234m. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. The cherry on top is that the CEO, Tom Broughton is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalisations between US$1.0b and US$3.2b, like ServisFirst Bancshares, the median CEO pay is around US$5.2m.

ServisFirst Bancshares offered total compensation worth US$2.6m to its CEO in the year to December 2022. That is actually below the median for CEO's of similarly sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.

Does ServisFirst Bancshares Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into ServisFirst Bancshares' strong EPS growth. Furthermore, company insiders have been adding to their significant stake in the company. Astute investors will want to keep this stock on watch. Even so, be aware that ServisFirst Bancshares is showing 2 warning signs in our investment analysis , and 1 of those is a bit unpleasant...

The good news is that ServisFirst Bancshares 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.

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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.