Does Hong Leong Industries Berhad (KLSE:HLIND) Deserve A Spot On Your Watchlist?

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Hong Leong Industries Berhad (KLSE:HLIND). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Hong Leong Industries Berhad with the means to add long-term value to shareholders.

See our latest analysis for Hong Leong Industries Berhad

How Fast Is Hong Leong Industries Berhad Growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, Hong Leong Industries Berhad has grown EPS by 11% per year. That growth rate is fairly good, assuming the company can keep it up.

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. Unfortunately, Hong Leong Industries Berhad's revenue dropped 8.9% last year, but the silver lining is that EBIT margins improved from 12% to 18%. While not disastrous, these figures could be better.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Hong Leong Industries Berhad's balance sheet strength, before getting too excited.

Are Hong Leong Industries Berhad Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Hong Leong Industries Berhad insiders have a significant amount of capital invested in the stock. To be specific, they have RM119m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 2.8% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Should You Add Hong Leong Industries Berhad To Your Watchlist?

As previously touched on, Hong Leong Industries Berhad is a growing business, which is encouraging. For those who are looking for a little more than this, the high level of insider ownership enhances our enthusiasm for this growth. That combination is very appealing. So yes, we do think the stock is worth keeping an eye on. We don't want to rain on the parade too much, but we did also find 2 warning signs for Hong Leong Industries Berhad (1 makes us a bit uncomfortable!) that you need to be mindful 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.