Does ES Ceramics Technology Berhad (KLSE:ESCERAM) Deserve A Spot On Your Watchlist?

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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

So if you're like me, you might be more interested in profitable, growing companies, like ES Ceramics Technology Berhad (KLSE:ESCERAM). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

Check out our latest analysis for ES Ceramics Technology Berhad

ES Ceramics Technology Berhad's Improving Profits

Over the last three years, ES Ceramics Technology Berhad has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. Thus, it makes sense to focus on more recent growth rates, instead. Like a firecracker arcing through the night sky, ES Ceramics Technology Berhad's EPS shot from RM0.034 to RM0.099, over the last year. Year on year growth of 194% is certainly a sight to behold. That could be a sign that the business has reached a true inflection point.

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. ES Ceramics Technology Berhad shareholders can take confidence from the fact that EBIT margins are up from 29% to 43%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.

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 ES Ceramics Technology Berhad is no giant, with a market capitalization of RM154m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are ES Ceramics Technology Berhad Insiders Aligned With All Shareholders?

Personally, I like to see high insider ownership of a company, since it suggests that it will be managed in the interests of shareholders. So we're pleased to report that ES Ceramics Technology Berhad insiders own a meaningful share of the business. In fact, they own 36% of the shares, making insiders a very influential shareholder group. I'm always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. Of course, ES Ceramics Technology Berhad is a very small company, with a market cap of only RM154m. So despite a large proportional holding, insiders only have RM56m worth of stock. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

Does ES Ceramics Technology Berhad Deserve A Spot On Your Watchlist?

ES Ceramics Technology Berhad's earnings have taken off like any random crypto-currency did, back in 2017. That sort of growth is nothing short of eye-catching, and the large investment held by insiders certainly brightens my view of the company. 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 ES Ceramics Technology Berhad for a spot on your watchlist. However, before you get too excited we've discovered 4 warning signs for ES Ceramics Technology Berhad (1 doesn't sit too well with us!) that you should be aware of.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

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.