First Guaranty Bancshares

FGBI

Ticker: FGBI, Buy below $18.

Why I Would Buy

  1. Very Cheap – First Guaranty trades at about 8 times trailing earnings. Other than being an obscure microcap stock, there isn’t anything else that I could find to explain this cheapness.
  2. Significant Insider Holding – About a third of the shares are held by management and directors.
  3. Recent Insider Buying – During the past 12 months 600,000 shares were purchased by company insiders, no significant sales were reported.
  4. Strong Returns on Equity – RoE is one of my favorite metrics for evaluating company performance, First Guaranty has posted some impressive numbers: 
    20112012201320142015
    7.37%10.90%9.31%11.40%12.98%
  5. Low Payout – Despite a healthy dividend of approximately 4%, the payout ratio is just 30%.

What Could Go Wrong

  1. Tiny –First Guaranty had a 2015 net income of $just 14.5 million and a market capitalization of about $120 million. Domiciled in Louisiana, it is the only the 7th largest bank in the state.
  2. Revenue PlateauRevenues have been flat for some years:
    20112012201320142015
    $51 mill$53 mill$47 mill$50 mill$56 mill
  3. Mediocre Safety/Stability Rating –First Guaranty is rated only 3 stars (out of a possible 5) by BankRate.com’s “Safe & Sound” bank ratings system.

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