Is Now The Time To Put GFM Services Berhad (KLSE:GFM) On Your Watchlist?

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. 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 GFM Services Berhad (KLSE:GFM). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

Check out our latest analysis for GFM Services Berhad

How Fast Is GFM Services Berhad Growing Its Earnings Per Share?

Over the last three years, GFM Services Berhad has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. So it would be better to isolate the growth rate over the last year for our analysis. GFM Services Berhad's EPS shot up from RM0.019 to RM0.028; a result that's bound to keep shareholders happy. That's a commendable gain of 52%.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. The music to the ears of GFM Services Berhad shareholders is that EBIT margins have grown from 32% to 36% in the last 12 months and revenues are on an upwards trend as well. Both of which are great metrics to check off for potential growth.

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

Since GFM Services Berhad is no giant, with a market capitalisation of RM135m, you should definitely check its cash and debt before getting too excited about its prospects.

Are GFM Services 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 we're pleased to report that GFM Services Berhad insiders own a meaningful share of the business. Owning 49% of the company, insiders have plenty riding on the performance of the the share price. Those who are comforted by solid insider ownership like this should be happy, as it implies that those running the business are genuinely motivated to create shareholder value. Of course, GFM Services Berhad is a very small company, with a market cap of only RM135m. That means insiders only have RM66m worth of shares, despite the large proportional holding. That might not be a huge sum but it should be enough to keep insiders motivated!

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. Well, based on the CEO pay, you'd argue that they are indeed. Our analysis has discovered that the median total compensation for the CEOs of companies like GFM Services Berhad with market caps under RM928m is about RM518k.

GFM Services Berhad offered total compensation worth RM344k to its CEO in the year to December 2022. That is actually below the median for CEO's of similarly sized companies. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of good governance, more generally.

Does GFM Services Berhad Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into GFM Services Berhad's strong EPS growth. If you still have your doubts, remember too that company insiders have a considerable investment aligning themselves with the shareholders and CEO pay is quite modest compared to similarly sized companiess. This may only be a fast rundown, but the key takeaway is that GFM Services Berhad is worth keeping an eye on. You still need to take note of risks, for example - GFM Services Berhad has 4 warning signs (and 2 which shouldn't be ignored) we think you should know about.

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.

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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.