Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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 Fiamma Holdings Berhad (KLSE:FIAMMA). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Fiamma Holdings Berhad with the means to add long-term value to shareholders.
Check out our latest analysis for Fiamma Holdings Berhad
How Quickly Is Fiamma Holdings 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. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. We can see that in the last three years Fiamma Holdings Berhad grew its EPS by 10% per year. That growth rate is fairly good, assuming the company can keep it up.
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. On the one hand, Fiamma Holdings Berhad's EBIT margins fell over the last year, but on the other hand, revenue grew. So it seems the future may hold further growth, especially if EBIT margins can remain steady.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
Fiamma Holdings Berhad isn't a huge company, given its market capitalisation of RM578m. That makes it extra important to check on its balance sheet strength.
Are Fiamma Holdings Berhad 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. Shareholders will be pleased by the fact that insiders own Fiamma Holdings Berhad shares worth a considerable sum. As a matter of fact, their holding is valued at RM86m. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 15% of the company, demonstrating a degree of high-level alignment with shareholders.