Here's Why We Think Hong Leong Bank Berhad (KLSE:HLBANK) Is Well Worth Watching

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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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 Hong Leong Bank Berhad (KLSE:HLBANK). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Hong Leong Bank Berhad with the means to add long-term value to shareholders.

See our latest analysis for Hong Leong Bank Berhad

How Fast Is Hong Leong Bank 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. We can see that in the last three years Hong Leong Bank Berhad grew its EPS by 12% per year. That's a good rate of growth, if it can be sustained.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Our analysis has highlighted that Hong Leong Bank Berhad's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. EBIT margins for Hong Leong Bank Berhad remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 8.6% to RM6.0b. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Hong Leong Bank Berhad.

Are Hong Leong Bank Berhad Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a RM41b company like Hong Leong Bank Berhad. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. As a matter of fact, their holding is valued at RM121m. This considerable investment should help drive long-term value in the business. While their ownership only accounts for 0.3%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.

Should You Add Hong Leong Bank Berhad To Your Watchlist?

One positive for Hong Leong Bank Berhad is that it is growing EPS. That's nice to see. To add an extra spark to the fire, significant insider ownership in the company is another highlight. That combination is very appealing. So yes, we do think the stock is worth keeping an eye on. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Hong Leong Bank Berhad that you should be aware of.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of Malaysian companies which have demonstrated growth backed by significant insider holdings.

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.