It’s common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital – so investors should be cautious that they’re not throwing good money after bad.
In contrast to all that, many investors prefer to focus on companies like Eden Berhad (KLSE:EDEN), which has not only revenues, but also profits. Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
Check out our latest analysis for Eden Berhad
How Quickly Is Eden Berhad Increasing Earnings Per Share?
The market is a voting machine in the short term, but a weighing machine in the long term, so you’d expect share price to follow earnings per share (EPS) outcomes eventually. That means EPS growth is considered a real positive by most successful long-term investors. Recognition must be given to the that Eden Berhad has grown EPS by 43% per year, over the last three years. Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it’s a great way for a company to maintain a competitive advantage in the market. The good news is that Eden Berhad is growing revenues, and EBIT margins improved by 4.8 percentage points to 1.7%, over the last year. That’s great to see, on both counts.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
Since Eden Berhad is no giant, with a market capitalisation of RM73m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Eden Berhad Insiders Aligned With All Shareholders?
Theory would suggest that it’s an encouraging sign to see high insider ownership of a company, since it ties company performance directly to the financial success of its management. So as you can imagine, the fact that Eden Berhad insiders own a significant number of shares certainly is appealing. In fact, they own 52% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes it apparent they will be incentivised to plan for the long term – a positive for shareholders with a sit and hold strategy. Of course, Eden Berhad is a very small company, with a market cap of only RM73m. So despite a large proportional holding, insiders only have RM38m worth of stock. That’s not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.
Is Eden Berhad Worth Keeping An Eye On?
Eden Berhad’s earnings have taken off in quite an impressive fashion. That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. Based on the sum of its parts, we definitely think its worth watching Eden Berhad very closely. Don’t forget that there may still be risks. For instance, we’ve identified 3 warning signs for Eden Berhad (1 is significant) you should be aware of.
While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in MY with promising growth potential and insider confidence.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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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.
