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.
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 Analabs Resources Berhad (KLSE:ANALABS). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Analabs Resources Berhad with the means to add long-term value to shareholders.
Check out our latest analysis for Analabs Resources Berhad
How Fast Is Analabs Resources Berhad Growing?
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. That means EPS growth is considered a real positive by most successful long-term investors. Analabs Resources Berhad's shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 40%. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors.
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. Analabs Resources Berhad shareholders can take confidence from the fact that EBIT margins are up from 9.2% to 19%, 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. To see the actual numbers, click on the chart.
Since Analabs Resources Berhad is no giant, with a market capitalisation of RM172m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Analabs Resources 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 Analabs Resources Berhad insiders own a meaningful share of the business. To be exact, company insiders hold 90% of the company, so their decisions have a significant impact on their investments. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. In terms of absolute value, insiders have RM154m invested in the business, at the current share price. That should be more than enough to keep them focussed on creating shareholder value!