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 completely lacks a track record of revenue and profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like IMS Group Holdings (HKG:8136). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
IMS Group Holdings's Improving Profits
In business, though not in life, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS). So like a ray of sunshine through a gap in the clouds, improving EPS is considered a good sign. It is therefore awe-striking that IMS Group Holdings's EPS went from HK$0.00039 to HK$0.016 in just one 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?
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. The good news is that IMS Group Holdings is growing revenues, and EBIT margins improved by 16.4 percentage points to 20%, over the last year. Ticking those two boxes is a good sign of growth, in my 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.
IMS Group Holdings isn't a huge company, given its market capitalization of HK$68m. That makes it extra important to check on its balance sheet strength.
Are IMS Group Holdings 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 we're pleased to report that IMS Group Holdings insiders own a meaningful share of the business. Indeed, with a collective holding of 58%, company insiders are in control and have plenty of capital behind the venture. This makes me think they will be incentivised to plan for the long term - something I like to see. Of course, IMS Group Holdings is a very small company, with a market cap of only HK$68m. So despite a large proportional holding, insiders only have HK$39m worth of stock. That might not be a huge sum but it should be enough to keep insiders motivated!
Is IMS Group Holdings Worth Keeping An Eye On?
IMS Group Holdings's earnings have taken off like any random crypto-currency did, back in 2017. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So yes, on this short analysis I do think it's worth considering IMS Group Holdings for a spot on your watchlist. However, before you get too excited we've discovered 4 warning signs for IMS Group Holdings (1 makes us a bit uncomfortable!) that you should be aware of.
You can invest in 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.
Valuation is complex, but we're helping make it simple.
Find out whether IMS Group Holdings is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
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.
IMS Group Holdings
IMS Group Holdings Limited, an investment holding company, designs and sells light-emitting diode (LED) lighting fixtures for retail stores of luxury brands in Hong Kong, the People’s Republic of China, the rest of Asia, Europe, and internationally.
Flawless balance sheet with solid track record.