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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
In contrast to all that, many investors prefer to focus on companies like Peoples Financial Services (NASDAQ:PFIS), 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 Peoples Financial Services with the means to add long-term value to shareholders.
See our latest analysis for Peoples Financial Services
Peoples Financial Services’ Earnings Per Share Are 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. Shareholders will be happy to know that Peoples Financial Services’ EPS has grown 20% each year, compound, over three years. As a general rule, we’d say that if a company can keep up that sort of growth, shareholders will be beaming.
It’s often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company’s growth. Our analysis has highlighted that Peoples Financial Services’ revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. While we note Peoples Financial Services achieved similar EBIT margins to last year, revenue grew by a solid 19% to US$115m. That’s progress.
In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.
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 Peoples Financial Services’ balance sheet strength, before getting too excited.
Are Peoples Financial Services 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don’t know the exact thinking behind their acquisitions.
Any way you look at it Peoples Financial Services shareholders can gain quiet confidence from the fact that insiders shelled out US$202k to buy stock, over the last year. When you contrast that with the complete lack of sales, it’s easy for shareholders to be brimming with joyful expectancy. It is also worth noting that it was Independent Chairman of the Board William Aubrey who made the biggest single purchase, worth US$66k, paying US$48.50 per share.
On top of the insider buying, it’s good to see that Peoples Financial Services insiders have a valuable investment in the business. As a matter of fact, their holding is valued at US$13m. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 3.5% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That’s because Peoples Financial Services’ CEO, Craig Best, is paid at a relatively modest level when compared to other CEOs for companies of this size. For companies with market capitalisations between US$200m and US$800m, like Peoples Financial Services, the median CEO pay is around US$2.5m.
The CEO of Peoples Financial Services only received US$1.0m in total compensation for the year ending December 2021. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. 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 good governance, more generally.
Should You Add Peoples Financial Services To Your Watchlist?
You can’t deny that Peoples Financial Services has grown its earnings per share at a very impressive rate. That’s attractive. Furthermore, company insiders have been adding to their significant stake in the company. Astute investors will want to keep this stock on watch. You should always think about risks though. Case in point, we’ve spotted 1 warning sign for Peoples Financial Services you should be aware of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Peoples Financial Services, you’ll probably love this free list of growing companies that insiders are buying.
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.
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