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For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. 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.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like United Overseas Insurance (SGX:U13). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide United Overseas Insurance with the means to add long-term value to shareholders.
Check out our latest analysis for United Overseas Insurance
United Overseas Insurance's Earnings Per Share Are Growing
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, United Overseas Insurance has grown EPS by 5.1% per year. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. United Overseas Insurance shareholders can take confidence from the fact that EBIT margins are up from 23% to 33%, and revenue is growing. Both of which are great metrics to check off for potential growth.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
While profitability drives the upside, prudent investors always check the balance sheet, too.
Are United Overseas Insurance Insiders Aligned With All Shareholders?
It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. United Overseas Insurance followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. To be specific, they have S$60m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 14% of the company; visible skin in the game.