With EPS Growth And More, Global Dragon (Catalist:586) Makes An Interesting Case
Simply Wall St
4 min read
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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Global Dragon (Catalist:586). 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.
Strong earnings per share (EPS) results are an indicator of a company achieving solid profits, which investors look upon favourably and so the share price tends to reflect great EPS performance. So for many budding investors, improving EPS is considered a good sign. It's an outstanding feat for Global Dragon to have grown EPS from S$0.004 to S$0.012 in just one year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.
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. EBIT margins for Global Dragon remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 197% to S$106m. That's encouraging news for the company!
The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
Catalist:586 Earnings and Revenue History December 19th 2022
Global Dragon isn't a huge company, given its market capitalisation of S$61m. That makes it extra important to check on its balance sheet strength.
Are Global Dragon Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
It's nice to see that there have been no reports of any insiders selling shares in Global Dragon in the previous 12 months. So it's definitely nice that COO & Executive Director Chee Wee Tan bought S$8.3k worth of shares at an average price of around S$0.083. It seems that at least one insider is prepared to show the market there is potential within Global Dragon.
And the insider buying isn't the only sign of alignment between shareholders and the board, since Global Dragon insiders own more than a third of the company. Indeed, with a collective holding of 88%, 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. With that sort of holding, insiders have about S$54m riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!
Is Global Dragon Worth Keeping An Eye On?
Global Dragon's earnings have taken off in quite an impressive fashion. The icing on the cake is that insiders own a large chunk of the company and one has even been buying more shares. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Global Dragon belongs near the top of your watchlist. We should say that we've discovered 4 warning signs for Global Dragon (1 can't be ignored!) that you should be aware of before investing here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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