Do Kenanga Investment Bank Berhad's (KLSE:KENANGA) Earnings Warrant Your Attention?

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.'

In contrast to all that, I prefer to spend time on companies like Kenanga Investment Bank Berhad (KLSE:KENANGA), which has not only revenues, but also profits. While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for Kenanga Investment Bank Berhad

Kenanga Investment Bank Berhad's Improving Profits

In business, though not in life, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS). So like the hint of a smile on a face that I love, growing EPS generally makes me look twice. You can imagine, then, that it almost knocked my socks off when I realized that Kenanga Investment Bank Berhad grew its EPS from RM0.038 to RM0.15, in one short year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement. Could this be a sign that the business has reached an inflection point?

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). I note that Kenanga Investment Bank Berhad's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. While we note Kenanga Investment Bank Berhad's EBIT margins were flat over the last year, revenue grew by a solid 79% to RM802m. That's a real positive.

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 Kenanga Investment Bank Berhad's balance sheet strength, before getting too excited.

Are Kenanga Investment Bank Berhad Insiders Aligned With All Shareholders?

I like company leaders to have some skin in the game, 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 Kenanga Investment Bank Berhad insiders have a significant amount of capital invested in the stock. With a whopping RM359m worth of shares as a group, insiders have plenty riding on the company's success. That holding amounts to 28% of the stock on issue, thus making insiders influential, and aligned, owners of the business.

Is Kenanga Investment Bank Berhad Worth Keeping An Eye On?

Kenanga Investment Bank Berhad's earnings per share have taken off like a rocket aimed right at the moon. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So to my mind Kenanga Investment Bank Berhad is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. You should always think about risks though. Case in point, we've spotted 3 warning signs for Kenanga Investment Bank Berhad you should be aware of.

You can invest in 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. 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.
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