Is Citizens First Corp. (CZFC) A Good Stock To Buy Right Now?

Is Citizens First Corp. (NASDAQ:CZFC) a good stock to buy right now? CZFC is a bank holding company with $434 million in assets and 10 branches in Kentucky. The bank recently reported second quarter EPS of $0.35 on revenue of $4.62 million. Loan demand was slightly down, with total loans disbursed decreasing 1.4% from the second half of 2014 to the first half of 2015. Credit quality improved, with non-performing assets to total assets down from 0.6% to 0.29% year over year.

Insiders have been buying Citizens First. According to SEC filings, President and CEO Todd Kanipe bought 500 shares on June 1, 1,000 shares on May 5, and 1,000 shares on April 24. Another insider, director Sarah Glenn Grise, bought 275 shares on April 28.

The insiders join hedge funds Mendon Capital Advisors and Hutchin Hill Capital as major holders of Citizens First. Mendon Capital Advisors owned 19,318 shares at the end of March, worth about $239,000 while Hutch Hill Capital owned 25,000 shares in the first quarter, worth $310,000. Mendon Capital Advisors increased its stake by 21% between January and March 31 while Hutchin Hill Capital kept its stake the same.

Insider trading is important to analyze because studies show that insider trading can produce alpha. While there are many reasons why an insider would sell, there is only one reason why an insider would buy. Academic research shows that certain insider purchases have outperformed the market by an average of 7 percentage points per year. In addition to following insiders, another way to beat the market is by following the small-cap stock picks of hedge funds. Our research shows that the 15 most popular small-cap stocks among hedge funds have outperformed the market by nearly a percentage point per month between 1999 and 2012. We have been forward testing the performance of these stock picks since the end of August 2012, and they managed to return more than 144% over the ensuing 2.5+ years and outperformed the S&P 500 Index by over 84 percentage points (read the details here).

We believe Citizens First Corp. (NASDAQ:CZFC) is a buy. Because of a potential upcoming catalyst, Citizens First shares offer a “heads I win a lot, tails I win a little or don’t lose much” bet.

Because of its microcap status, Citizens First shares are under-followed. The under-followed nature of the bank undervalues Citizens First’s stock. Although the bank earns a respectable return on equity of 9.44% and a respectable return on assets of 0.83%, the bank trades at 0.96x its tangible book value of $13.20 per share. This compares to peers that trade at an average of 1.4x tangible book.