Stock Analysis

Here's Why We Think FirstRand (JSE:FSR) Might Deserve Your Attention Today

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The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

In contrast to all that, many investors prefer to focus on companies like FirstRand (JSE:FSR), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide FirstRand with the means to add long-term value to shareholders.

See our latest analysis for FirstRand

How Fast Is FirstRand Growing?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That makes EPS growth an attractive quality for any company. FirstRand's shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 39%. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Not all of FirstRand'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. While we note FirstRand achieved similar EBIT margins to last year, revenue grew by a solid 11% to R125b. That's progress.

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.

JSE:FSR Earnings and Revenue History May 21st 2024

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

Are FirstRand Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, 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.

We do note that, in the last year, insiders sold R59m worth of shares. But that's far less than the R289m insiders spent purchasing stock. This bodes well for FirstRand as it highlights the fact that those who are important to the company having a lot of faith in its future. We also note that it was the Chief Executive Officer of RMB, Emmarentia Brown, who made the biggest single acquisition, paying R157m for shares at about R64.86 each.

The good news, alongside the insider buying, for FirstRand bulls is that insiders (collectively) have a meaningful investment in the stock. With a whopping R1.0b worth of shares as a group, insiders have plenty riding on the company's success. This would indicate that the goals of shareholders and management are one and the same.

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. That's because FirstRand's CEO, Mary Vilakazi, 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 FirstRand, with market caps over R145b, is around R53m.

The FirstRand CEO received R35m in compensation for the year ending June 2023. 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 a culture of integrity, in a broader sense.

Does FirstRand Deserve A Spot On Your Watchlist?

FirstRand's earnings per share growth have been climbing higher at an appreciable rate. To make matters even better, the company insiders who know the company best have put their faith in the its future and have been buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe FirstRand deserves timely attention. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for FirstRand that you should be aware of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of FirstRand, you'll probably love this curated collection of companies in ZA that have an attractive valuation alongside insider buying in the last three months.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Valuation is complex, but we're helping make it simple.

Find out whether FirstRand is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.