The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
In contrast to all that, many investors prefer to focus on companies like SDS Group Berhad (KLSE:SDS), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide SDS Group Berhad with the means to add long-term value to shareholders.
See our latest analysis for SDS Group Berhad
SDS Group Berhad's Improving Profits
SDS Group Berhad has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. So it would be better to isolate the growth rate over the last year for our analysis. SDS Group Berhad's EPS skyrocketed from RM0.039 to RM0.061, in just one year; a result that's bound to bring a smile to shareholders. That's a fantastic gain of 58%.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. SDS Group Berhad maintained stable EBIT margins over the last year, all while growing revenue 34% to RM294m. That's encouraging news for the company!
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
SDS Group Berhad isn't a huge company, given its market capitalisation of RM248m. That makes it extra important to check on its balance sheet strength.
Are SDS Group Berhad Insiders Aligned With All Shareholders?
Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So as you can imagine, the fact that SDS Group Berhad insiders own a significant number of shares certainly is appealing. Indeed, with a collective holding of 78%, 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. To give you an idea, the value of insiders' holdings in the business are valued at RM193m at the current share price. That should be more than enough to keep them focussed on creating shareholder value!