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 Classic Scenic Berhad (KLSE:CSCENIC), which has not only revenues, but also profits. Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
See our latest analysis for Classic Scenic Berhad
Classic Scenic Berhad's Earnings Per Share Are Growing
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. To the delight of shareholders, Classic Scenic Berhad has achieved impressive annual EPS growth of 43%, compound, over the last three years. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. The music to the ears of Classic Scenic Berhad shareholders is that EBIT margins have grown from 17% to 29% in the last 12 months and revenues are on an upwards trend as well. Both of which are great metrics to check off for potential growth.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
Since Classic Scenic Berhad is no giant, with a market capitalisation of RM204m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Classic Scenic Berhad Insiders Aligned With All Shareholders?
Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So those who are interested in Classic Scenic Berhad will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. Indeed, with a collective holding of 53%, company insiders are in control and have plenty of capital behind the venture. 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 RM108m invested in the business, at the current share price. That should be more than enough to keep them focussed on creating shareholder value!