Yahoo Finance If You Like EPS Growth Then Check Out Farmers & Merchants Bancorp (NASDAQ:FMAO) Before It's Too Late
It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. 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.
So if you're like me, you might be more interested in profitable, growing companies, like Farmers & Merchants Bancorp (NASDAQ:FMAO). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
Check out our latest analysis for Farmers & Merchants Bancorp
Farmers & Merchants Bancorp's Earnings Per Share Are Growing.
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That means EPS growth is considered a real positive by most successful long-term investors. Farmers & Merchants Bancorp managed to grow EPS by 11% per year, over three years. That growth rate is fairly good, assuming the company can keep it up.
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 Farmers & Merchants Bancorp's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. While we note Farmers & Merchants Bancorp's EBIT margins were flat over the last year, revenue grew by a solid 24% to US$89m. That's progress.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Farmers & Merchants Bancorp EPS 100% free.
Are Farmers & Merchants Bancorp Insiders Aligned With All Shareholders?
I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. As a result, I'm encouraged by the fact that insiders own Farmers & Merchants Bancorp shares worth a considerable sum. Indeed, they hold US$41m worth of its stock. That's a lot of money, and no small incentive to work hard. That amounts to 8.3% of the company, demonstrating a degree of high-level alignment with shareholders.
It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. For companies with market capitalizations between US$200m and US$800m, like Farmers & Merchants Bancorp, the median CEO pay is around US$2.6m.
The CEO of Farmers & Merchants Bancorp only received US$718k in total compensation for the year ending . That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. I'd also argue reasonable pay levels attest to good decision making more generally.
Is Farmers & Merchants Bancorp Worth Keeping An Eye On?
As I already mentioned, Farmers & Merchants Bancorp is a growing business, which is what I like to see. The fact that EPS is growing is a genuine positive for Farmers & Merchants Bancorp, but the pretty picture gets better than that. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. Still, you should learn about the 1 warning sign we've spotted with Farmers & Merchants Bancorp .
Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.
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.
