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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.' 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.
In contrast to all that, many investors prefer to focus on companies like Intraco (SGX:I06), which has not only revenues, but also profits. 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 Intraco
Intraco's Improving Profits
Investors and investment funds chase profits, and that means share prices tend rise with positive earnings per share (EPS) outcomes. So a growing EPS generally brings attention to a company in the eyes of prospective investors. It is awe-striking that Intraco's EPS went from S$0.00025 to S$0.027 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company.
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. EBIT margins for Intraco remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 4.5% to S$174m. That's encouraging news for the company!
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
Intraco isn't a huge company, given its market capitalisation of S$30m. That makes it extra important to check on its balance sheet strength.
Are Intraco 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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
The first bit of good news is that no Intraco insiders reported share sales in the last twelve months. Even better, though, is that the Executive Chairman, Lye Mak, bought a whopping S$842k worth of shares, paying about S$0.29 per share, on average. Purchases like this can offer an insight into the faith of the company's management - and it seems to be all positive.