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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
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 CRG Berhad (KLSE:CRG). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide CRG Berhad with the means to add long-term value to shareholders.
Check out our latest analysis for CRG Berhad
CRG Berhad's Improving Profits
Investors and investment funds chase profits, and that means share prices tend rise with positive earnings per share (EPS) outcomes. Which is why EPS growth is looked upon so favourably. It's an outstanding feat for CRG Berhad to have grown EPS from RM0.0049 to RM0.028 in just one year. Even though that growth rate may not be repeated, that looks like a breakout improvement. This could point to the business hitting a point of inflection.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. CRG Berhad shareholders can take confidence from the fact that EBIT margins are up from 9.1% to 29%, and revenue is growing. 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. To see the actual numbers, click on the chart.
Since CRG Berhad is no giant, with a market capitalisation of RM157m, you should definitely check its cash and debt before getting too excited about its prospects.
Are CRG Berhad Insiders Aligned With All Shareholders?
Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price. So we're pleased to report that CRG Berhad insiders own a meaningful share of the business. Indeed, with a collective holding of 55%, company insiders are in control and have plenty of capital behind the venture. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. With that sort of holding, insiders have about RM86m riding on the stock, at current prices. So there's plenty there to keep them focused!