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For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. 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.
In contrast to all that, many investors prefer to focus on companies like Stamford Tyres (SGX:S29), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Stamford Tyres with the means to add long-term value to shareholders.
Check out our latest analysis for Stamford Tyres
Stamford Tyres' Earnings Per Share Are Growing
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Stamford Tyres has managed to grow EPS by 34% per year over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.
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. It's noted that Stamford Tyres' revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. Stamford Tyres reported flat revenue and EBIT margins over the last year. That's not a major concern but nor does it point to the long term growth we like to see.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
Since Stamford Tyres is no giant, with a market capitalisation of S$50m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Stamford Tyres Insiders Aligned With All Shareholders?
Theory would suggest that it's an encouraging sign to see high insider ownership of a company, since it ties company performance directly to the financial success of its management. So we're pleased to report that Stamford Tyres insiders own a meaningful share of the business. In fact, they own 37% of the shares, making insiders a very influential shareholder group. 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. Of course, Stamford Tyres is a very small company, with a market cap of only S$50m. So this large proportion of shares owned by insiders only amounts to S$19m. That might not be a huge sum but it should be enough to keep insiders motivated!