Ticker: FGBI, Buy below $18.
Why I Would Buy
- 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.
- Significant Insider Holding – About a third of the shares are held by management and directors.
- Recent Insider Buying – During the past 12 months 600,000 shares were purchased by company insiders, no significant sales were reported.
- Strong Returns on Equity – RoE is one of my favorite metrics for evaluating company performance, First Guaranty has posted some impressive numbers:
2011 2012 2013 2014 2015 7.37% 10.90% 9.31% 11.40% 12.98%
- Low Payout – Despite a healthy dividend of approximately 4%, the payout ratio is just 30%.
What Could Go Wrong
- 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.
- Revenue Plateau –Revenues have been flat for some years:
2011 2012 2013 2014 2015 $51 mill $53 mill $47 mill $50 mill $56 mill
- 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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