Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Kingsmen Creatives (SGX:5MZ). 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 Kingsmen Creatives
Kingsmen Creatives' Improving Profits
In business, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS) performance. Which is why EPS growth is looked upon so favourably. Commendations have to be given in seeing that Kingsmen Creatives grew its EPS from S$0.0058 to S$0.034, in one short year. When you see earnings grow that quickly, it often means good things ahead for the company. Could this be a sign that the business has reached an inflection point?
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. While we note Kingsmen Creatives achieved similar EBIT margins to last year, revenue grew by a solid 26% to S$350m. That's encouraging news for the company!
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
Since Kingsmen Creatives is no giant, with a market capitalisation of S$61m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Kingsmen Creatives Insiders Aligned With All Shareholders?
Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
The good news for Kingsmen Creatives shareholders is that no insiders reported selling shares in the last year. So it's definitely nice that Co-Founder & Deputy Executive Chairman Chin Sim Ong bought S$47k worth of shares at an average price of around S$0.23. Purchases like this can help the investors understand the views of the management team; in which case they see some potential in Kingsmen Creatives.