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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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
In contrast to all that, many investors prefer to focus on companies like Mermaid Maritime (SGX:DU4), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Mermaid Maritime with the means to add long-term value to shareholders.
Mermaid Maritime's Improving Profits
Mermaid Maritime has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. So it would be better to isolate the growth rate over the last year for our analysis. Mermaid Maritime's EPS skyrocketed from ฿0.24 to ฿0.34, in just one year; a result that's bound to bring a smile to shareholders. That's a fantastic gain of 39%.
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. On the revenue front, Mermaid Maritime has done well over the past year, growing revenue by 88% to ฿18b but EBIT margin figures were less stellar, seeing a decline over the last 12 months. So it seems the future may hold further growth, especially if EBIT margins can remain steady.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
View our latest analysis for Mermaid Maritime
Since Mermaid Maritime is no giant, with a market capitalisation of S$133m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Mermaid Maritime Insiders Aligned With All Shareholders?
It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. Shareholders will be pleased by the fact that insiders own Mermaid Maritime shares worth a considerable sum. To be specific, they have ฿26m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 20% of the company; visible skin in the game.