Here's Why I Think First American Financial (NYSE:FAF) Might Deserve Your Attention Today
Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
So if you're like me, you might be more interested in profitable, growing companies, like First American Financial (NYSE:FAF). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
View our latest analysis for First American Financial
How Fast Is First American Financial Growing?
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. As a tree reaches steadily for the sky, First American Financial's EPS has grown 25% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.
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 American Financial'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. The good news is that First American Financial is growing revenues, and EBIT margins improved by 2.5 percentage points to 17%, over the last year. That's great to see, on both counts.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of First American Financial's forecast profits?
Are First American Financial Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, 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.
Like a sturdy phalanx First American Financial insiders have stood united by refusing to sell shares over the last year. But my excitement comes from the US$191k that Independent Director Mark Oman spent buying shares (at an average price of about US$47.78).
Along with the insider buying, another encouraging sign for First American Financial is that insiders, as a group, have a considerable shareholding. Notably, they have an enormous stake in the company, worth US$235m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!
Should You Add First American Financial To Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about First American Financial's strong EPS growth. The cranberry sauce on the turkey is that insiders own a bunch of shares, and one has been buying more. So it's fair to say I think this stock may well deserve a spot on your watchlist. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for First American Financial that you should be aware of.
As a growth investor I do like to see insider buying. But First American Financial isn't the only one. You can see a a free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
This article by Simply Wall St is general in nature. 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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