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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Mackinac Financial (NASDAQ:MFNC). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
Mackinac Financial's Earnings Per Share Are Growing.
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. It's no surprise, then, that I like to invest in companies with EPS growth. It certainly is nice to see that Mackinac Financial has managed to grow EPS by 17% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). I note that Mackinac Financial's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Mackinac Financial maintained stable EBIT margins over the last year, all while growing revenue 7.3% to US$65m. 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.
Mackinac Financial isn't a huge company, given its market capitalization of US$225m. That makes it extra important to check on its balance sheet strength.
Are Mackinac 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. 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.
We note that Mackinac Financial insiders spent US$140k on stock, over the last year; in contrast, we didn't see any selling. That's nice to see, because it suggests insiders are optimistic. It is also worth noting that it was Chairman & CEO Paul Tobias who made the biggest single purchase, worth US$49k, paying US$12.25 per share.
The good news, alongside the insider buying, for Mackinac Financial bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold US$35m worth of its stock. That's a lot of money, and no small incentive to work hard. That amounts to 16% of the company, demonstrating a degree of high-level alignment with shareholders.
While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. That's because on our analysis the CEO, Paul Tobias, is paid less than the median for similar sized companies. For companies with market capitalizations between US$100m and US$400m, like Mackinac Financial, the median CEO pay is around US$1.0m.
Mackinac Financial offered total compensation worth US$706k to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. 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 Mackinac Financial To Your Watchlist?
For growth investors like me, Mackinac Financial's raw rate of earnings growth is a beacon in the night. On top of that, insiders own a significant stake in the company and have been buying more shares. So I do think this is one stock worth watching. You should always think about risks though. Case in point, we've spotted 3 warning signs for Mackinac Financial you should be aware of, and 1 of them is a bit unpleasant.
The good news is that Mackinac Financial is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.