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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
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 Sunzen Biotech Berhad (KLSE:SUNZEN). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
See our latest analysis for Sunzen Biotech Berhad
How Fast Is Sunzen Biotech Berhad Growing Its Earnings Per Share?
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 Sunzen Biotech Berhad grew its EPS from RM0.0012 to RM0.0052, in one short year. When you see earnings grow that quickly, it often means good things ahead for the company.
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. The good news is that Sunzen Biotech Berhad is growing revenues, and EBIT margins improved by 3.5 percentage points to 7.8%, over the last year. Ticking those two boxes is a good sign of growth, in our book.
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.
Since Sunzen Biotech Berhad is no giant, with a market capitalisation of RM141m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Sunzen Biotech Berhad Insiders Aligned With All Shareholders?
Theory would suggest that it’s an encouraging sign to see high insider ownership of a company, since it ties company performance directly to the financial success of its management. So those who are interested in Sunzen Biotech Berhad will be delighted to know that insiders have shown their belief, holding a large proportion of the company’s shares. To be exact, company insiders hold 66% of the company, so their decisions have a significant impact on their investments. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. With that sort of holding, insiders have about RM93m riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!
While it’s always good to see some strong conviction in the company from insiders through heavy investment, it’s also important for shareholders to ask if management compensation policies are reasonable. A brief analysis of the CEO compensation suggests they are. Our analysis has discovered that the median total compensation for the CEOs of companies like Sunzen Biotech Berhad with market caps under RM896m is about RM495k.
The Sunzen Biotech Berhad CEO received total compensation of only RM148k in the year to December 2021. This could be considered a token amount, and indicates that the company does not need to use payment to motivate the CEO – that is often a good sign. CEO compensation is hardly the most important aspect of a company to consider, but when it’s reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.
Is Sunzen Biotech Berhad Worth Keeping An Eye On?
Sunzen Biotech Berhad’s earnings per share growth have been climbing higher at an appreciable rate. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The sharp increase in earnings could signal good business momentum. Big growth can make big winners, so the writing on the wall tells us that Sunzen Biotech Berhad is worth considering carefully. You should always think about risks though. Case in point, we’ve spotted 2 warning signs for Sunzen Biotech Berhad you should be aware of, and 1 of them is concerning.
The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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