Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
So if you're like me, you might be more interested in profitable, growing companies, like Singapore Technologies Engineering (SGX:S63). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
How Quickly Is Singapore Technologies Engineering Increasing Earnings Per Share?
As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. We can see that in the last three years Singapore Technologies Engineering grew its EPS by 5.9% per year. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Singapore Technologies Engineering maintained stable EBIT margins over the last year, all while growing revenue 17% to S$7.9b. That's progress.
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
Are Singapore Technologies Engineering Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Singapore Technologies Engineering top brass are certainly in sync, not having sold any shares, over the last year. But my excitement comes from the S$79k that Independent Non-Executive Director Chin-Hu Lim spent buying shares (at an average price of about S$3.93).
On top of the insider buying, it's good to see that Singapore Technologies Engineering insiders have a valuable investment in the business. To be specific, they have S$36m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 0.3% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Vincent Chong, is paid less than the median for similar sized companies. For companies with market capitalizations between S$5.6b and S$17b, like Singapore Technologies Engineering, the median CEO pay is around S$5.5m.
The Singapore Technologies Engineering CEO received S$4.6m in compensation for the year ending December 2018. That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.
Is Singapore Technologies Engineering Worth Keeping An Eye On?
One positive for Singapore Technologies Engineering is that it is growing EPS. That's nice to see. Better yet, insiders are significant shareholders, and have been buying more shares. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. If you think Singapore Technologies Engineering might suit your style as an investor, you could go straight to its annual report, or you could first check our discounted cash flow (DCF) valuation for the company.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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