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. 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 CFM Holdings (Catalist:5EB), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
Check out our latest analysis for CFM Holdings
CFM Holdings' Improving Profits
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. Which is why EPS growth is looked upon so favourably. It's an outstanding feat for CFM Holdings to have grown EPS from S$0.0038 to S$0.055 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company. This could point to the business hitting a point of inflection.
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. The good news is that CFM Holdings is growing revenues, and EBIT margins improved by 8.3 percentage points to 11%, over the last year. 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. To see the actual numbers, click on the chart.
Since CFM Holdings is no giant, with a market capitalisation of S$19m, you should definitely check its cash and debt before getting too excited about its prospects.
Are CFM Holdings 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 CFM Holdings insiders own a meaningful share of the business. Indeed, with a collective holding of 71%, 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. Of course, CFM Holdings is a very small company, with a market cap of only S$19m. So this large proportion of shares owned by insiders only amounts to S$13m. This isn't an overly large holding but it should still keep the insiders motivated to deliver the best outcomes for shareholders.