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Should You Be Adding BayFirst Financial (NASDAQ:BAFN) To Your Watchlist Today?

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. 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 BayFirst Financial (NASDAQ:BAFN). 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. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

View our latest analysis for BayFirst Financial

BayFirst Financial's Improving Profits

Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So EPS growth can certainly encourage an investor to take note of a stock. Like the last firework on New Year's Eve accelerating into the sky, BayFirst Financial's EPS shot from US$2.44 to US$6.64, over the last year. You don't see 172% year-on-year growth like that, very often. The best case scenario? That the business has hit a true inflection point.

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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 BayFirst 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. While we note BayFirst Financial's EBIT margins were flat over the last year, revenue grew by a solid 78% to US$166m. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

earnings-and-revenue-history
earnings-and-revenue-history

Since BayFirst Financial is no giant, with a market capitalization of US$95m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are BayFirst Financial Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. 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.

In the last twelve months BayFirst Financial insiders spent US$7.7k on stock; good news for shareholders. While this isn't much, we also note an absence of sales.

Along with the insider buying, another encouraging sign for BayFirst Financial is that insiders, as a group, have a considerable shareholding. Indeed, they hold US$31m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 33% of the company, demonstrating a degree of high-level alignment with shareholders.

Does BayFirst Financial Deserve A Spot On Your Watchlist?

BayFirst Financial's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. Just as heartening; insiders both own and are buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe BayFirst Financial deserves timely attention. However, before you get too excited we've discovered 4 warning signs for BayFirst Financial that you should be aware of.

As a growth investor I do like to see insider buying. But BayFirst 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.

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.