Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.
In contrast to all that, I prefer to spend time on companies like Sern Kou Resources Berhad (KLSE:SERNKOU), which has not only revenues, but also profits. Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
How Fast Is Sern Kou Resources Berhad Growing?
As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. It certainly is nice to see that Sern Kou Resources Berhad has managed to grow EPS by 23% per year over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Sern Kou Resources Berhad maintained stable EBIT margins over the last year, all while growing revenue 5.3% to RM310m. That's progress.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
Sern Kou Resources Berhad isn't a huge company, given its market capitalization of RM560m. That makes it extra important to check on its balance sheet strength.
Are Sern Kou Resources 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 Sern Kou Resources Berhad insiders own a meaningful share of the business. In fact, they own 63% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes me think they will be incentivised to plan for the long term - something I like to see. With that sort of holding, insiders have about RM354m riding on the stock, at current prices. That's nothing to sneeze at!
It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I'd say they are indeed. I discovered that the median total compensation for the CEOs of companies like Sern Kou Resources Berhad with market caps under RM838m is about RM523k.
The Sern Kou Resources Berhad CEO received total compensation of only RM17k in the year to . You could consider this pay as somewhat symbolic, which suggests the CEO does not need a lot of compensation to stay motivated. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.
Is Sern Kou Resources Berhad Worth Keeping An Eye On?
You can't deny that Sern Kou Resources Berhad has grown its earnings per share at a very impressive rate. That's attractive. If that's not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. Each to their own, but I think all this makes Sern Kou Resources Berhad look rather interesting indeed. We should say that we've discovered 2 warning signs for Sern Kou Resources Berhad that you should be aware of before investing here.
Although Sern Kou Resources Berhad certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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Sern Kou Resources Berhad
Sern Kou Resources Berhad, an investment holding company, manufactures and trades in wooden furniture in Malaysia, Africa, Australia, the United States, European countries, Singapore, and rest of Asia-Pacific countries.
Adequate balance sheet and overvalued.