It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Sin Ghee Huat (SGX:B7K). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
How Fast Is Sin Ghee Huat Growing Its Earnings Per Share?
In the last three years Sin Ghee Huat's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. Thus, it makes sense to focus on more recent growth rates, instead. Like a wedge-tailed eagle on the wind, Sin Ghee Huat's EPS soared from S$0.0056 to S$0.0085, in just one year. That's a commendable gain of 51%.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). While we note Sin Ghee Huat's EBIT margins were flat over the last year, revenue grew by a solid 14% to S$49m. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
Sin Ghee Huat isn't a huge company, given its market capitalization of S$46m. That makes it extra important to check on its balance sheet strength.
Are Sin Ghee Huat Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
It's a pleasure to note that insiders spent S$2.3m buying Sin Ghee Huat shares, over the last year, without reporting any share sales whatsoever. As if for a flower bud approaching bloom, I become an expectant observer, anticipating with hope, that something splendid is coming. It is also worth noting that it was Non-Independent Non-Executive Director Chui Heng Low who made the biggest single purchase, worth S$2.3m, paying S$0.23 per share.
Should You Add Sin Ghee Huat To Your Watchlist?
You can't deny that Sin Ghee Huat has grown its earnings per share at a very impressive rate. That's attractive. The growth rate whets my appetite for research, and the insider buying only increases my interest in the stock. To put it succinctly; Sin Ghee Huat is a strong candidate for your watchlist. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Sin Ghee Huat is trading on a high P/E or a low P/E, relative to its industry.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Sin Ghee Huat, you'll probably love this free list of growing companies that insiders are buying.
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 firstname.lastname@example.org. 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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