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.
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 Formosa Prosonic Industries Berhad (KLSE:FPI). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
View our latest analysis for Formosa Prosonic Industries Berhad
How Quickly Is Formosa Prosonic Industries Berhad Increasing Earnings Per Share?
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 makes EPS growth an attractive quality for any company. Formosa Prosonic Industries Berhad's shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 37%. Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.
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. Formosa Prosonic Industries Berhad maintained stable EBIT margins over the last year, all while growing revenue 2.6% to RM1.0b. That's encouraging news for the company!
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
Formosa Prosonic Industries Berhad isn't a huge company, given its market capitalisation of RM767m. That makes it extra important to check on its balance sheet strength.
Are Formosa Prosonic Industries Berhad Insiders Aligned With All Shareholders?
It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. Formosa Prosonic Industries Berhad followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. As a matter of fact, their holding is valued at RM169m. This considerable investment should help drive long-term value in the business. As a percentage, this totals to 22% of the shares on issue for the business, an appreciable amount considering the market cap.