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. 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. 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 Analabs Resources Berhad (KLSE:ANALABS), which has not only revenues, but also profits. While this doesn’t necessarily speak to whether it’s undervalued, the profitability of the business is enough to warrant some appreciation – especially if its growing.
See our latest analysis for Analabs Resources Berhad
How Fast Is Analabs Resources Berhad 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. Recognition must be given to the that Analabs Resources Berhad has grown EPS by 38% per year, over the last three years. While that sort of growth rate isn’t sustainable for long, it certainly catches the eye of prospective investors.
It’s often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company’s growth. Analabs Resources Berhad shareholders can take confidence from the fact that EBIT margins are up from -2.7% to 24%, and revenue is growing. Ticking those two boxes is a good sign of growth, in our book.
The chart below shows how the company’s bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
Since Analabs Resources Berhad is no giant, with a market capitalisation of RM198m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Analabs Resources Berhad Insiders Aligned With All Shareholders?
Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there’s less of a probability in a sudden sell-off that would impact the share price. So those who are interested in Analabs Resources Berhad will be delighted to know that insiders have shown their belief, holding a large proportion of the company’s shares. Indeed, with a collective holding of 91%, company insiders are in control and have plenty of capital behind the venture. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. With that sort of holding, insiders have about RM180m riding on the stock, at current prices. So there’s plenty there to keep them focused!
It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. Well, based on the CEO pay, you’d argue that they are indeed. For companies with market capitalisations under RM945m, like Analabs Resources Berhad, the median CEO pay is around RM493k.
The Analabs Resources Berhad CEO received total compensation of only RM18k in the year to April 2023. This total may indicate that the CEO is sacrificing take home pay for performance-based benefits, ensuring that their motivations are synonymous with strong company results. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Should You Add Analabs Resources Berhad To Your Watchlist?
Analabs Resources Berhad’s earnings per share have been soaring, with growth rates sky high. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The strong EPS improvement suggests the businesses is humming along. Analabs Resources Berhad is certainly doing some things right and is well worth investigating. What about risks? Every company has them, and we’ve spotted 2 warning signs for Analabs Resources Berhad (of which 1 is concerning!) you should know about.
Although Analabs Resources Berhad certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with insider buying, then check out this handpicked selection of Malaysian companies that not only boast of strong growth but have also seen recent insider buying..
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
