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.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like First Community Bankshares (NASDAQ:FCBC). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
First Community Bankshares' 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. Over the last three years, First Community Bankshares has grown EPS by 9.7% per year. That growth rate is fairly good, assuming the company can keep it up.
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 First Community Bankshares' 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. EBIT margins for First Community Bankshares remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 5.3% to US$147m. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
NasdaqGS:FCBC Earnings and Revenue History May 1st 2023
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 First Community Bankshares' balance sheet strength, before getting too excited.
Are First Community Bankshares 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.
It's worth noting that there was some insider selling of First Community Bankshares shares last year, worth US$30k. But that doesn't beat the large US$135k share acquisition by Independent Director Richard Johnson. And that's a reason to be optimistic.
Along with the insider buying, another encouraging sign for First Community Bankshares is that insiders, as a group, have a considerable shareholding. As a matter of fact, their holding is valued at US$48m. That's a lot of money, and no small incentive to work hard. As a percentage, this totals to 13% of the shares on issue for the business, an appreciable amount considering the market cap.
Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because on our analysis the CEO, Will Stafford, is paid less than the median for similar sized companies. For companies with market capitalisations between US$200m and US$800m, like First Community Bankshares, the median CEO pay is around US$2.6m.
First Community Bankshares' CEO took home a total compensation package of US$970k in the year prior to December 2022. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Is First Community Bankshares Worth Keeping An Eye On?
As previously touched on, First Community Bankshares is a growing business, which is encouraging. Better yet, insiders are significant shareholders, and have been buying more shares. These factors alone make the company an interesting prospect for your watchlist, as well as continuing research. Still, you should learn about the 1 warning sign we've spotted with First Community Bankshares.
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.
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