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 completely lacks a track record of revenue and profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Straits Trading (SGX:S20). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
How Fast Is Straits Trading Growing?
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 Straits Trading grew its EPS by 6.8% per year. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. I note that Straits Trading's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Straits Trading's EBIT margins have actually improved by 6.0 percentage points in the last year, to reach 18%, but, on the flip side, revenue was down 14%. That falls short of ideal.
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.
While profitability drives the upside, prudent investors always check the balance sheet, too.
Are Straits Trading Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, 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.
One gleaming positive for Straits Trading, in the last year, is that a certain insider has buying shares with ample enthusiasm. Indeed, Executive Chairman Gek Khim Chew has accumulated shares over the last year, paying a total of S$1.5m at an average price of about S$2.14. Big insider buys like that are almost as rare as an ocean free of single use plastic waste.
Does Straits Trading Deserve A Spot On Your Watchlist?
One important encouraging feature of Straits Trading is that it is growing profits. Not every business can grow its EPS, but Straits Trading certainly can. The cherry on top is that we have an insider buying shares. That encourages me further to keep an eye on this stock. Once you've identified a business you like, the next step is to consider what you think it's worth. And right now is your chance to view our exclusive discounted cashflow valuation of Straits Trading. You might benefit from giving it a glance today.
As a growth investor I do like to see insider buying. But Straits Trading isn't the only one. You can see a a free list of them here.
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 email@example.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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