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.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Sisram Medical (HKG:1696). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
Sisram Medical's Improving Profits
Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So it's no surprise that some investors are more inclined to invest in profitable businesses. Like a wedge-tailed eagle on the wind, Sisram Medical's EPS soared from US$0.037 to US$0.054, in just one year. That's a impressive gain of 46%.
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. Sisram Medical maintained stable EBIT margins over the last year, all while growing revenue 8.4% to US$161m. 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.
Sisram Medical isn't a huge company, given its market capitalization of HK$1.8b. That makes it extra important to check on its balance sheet strength.
Are Sisram Medical Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
The good news for Sisram Medical shareholders is that no insiders reported selling shares in the last year. So it's definitely nice that CEO & Executive Director Lior Dayan bought US$308k worth of shares at an average price of around US$3.98.
Should You Add Sisram Medical To Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Sisram Medical's strong EPS growth. Not only is that growth rate rather juicy, but the insider buying makes my mouth water. So on this analysis I believe Sisram Medical is probably worth spending some time on. 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 Sisram Medical is trading on a high P/E or a low P/E, relative to its industry.
As a growth investor I do like to see insider buying. But Sisram Medical 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
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