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The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Sin Heng Heavy Machinery (SGX:BKA). 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.
Check out our latest analysis for Sin Heng Heavy Machinery
How Quickly Is Sin Heng Heavy Machinery Increasing Earnings Per Share?
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That means EPS growth is considered a real positive by most successful long-term investors. To the delight of shareholders, Sin Heng Heavy Machinery has achieved impressive annual EPS growth of 50%, 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.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Sin Heng Heavy Machinery's EBIT margins have actually improved by 3.8 percentage points in the last year, to reach 13%, but, on the flip side, revenue was down 7.3%. That falls short of ideal.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
Sin Heng Heavy Machinery 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 Sin Heng Heavy Machinery 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 as you can imagine, the fact that Sin Heng Heavy Machinery insiders own a significant number of shares certainly is appealing. Actually, with 40% of the company to their names, insiders are profoundly invested in the business. Those who are comforted by solid insider ownership like this should be happy, as it implies that those running the business are genuinely motivated to create shareholder value. In terms of absolute value, insiders have S$24m invested in the business, at the current share price. That should be more than enough to keep them focussed on creating shareholder value!