Stock Analysis

Here's Why I Think Kretam Holdings Berhad (KLSE:KRETAM) Is An Interesting Stock

KLSE:KRETAM
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Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. 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.

In contrast to all that, I prefer to spend time on companies like Kretam Holdings Berhad (KLSE:KRETAM), 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. 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.

See our latest analysis for Kretam Holdings Berhad

How Fast Is Kretam Holdings Berhad Growing Its Earnings Per Share?

In a capitalist society capital chases profits, and that means share prices tend rise with earnings per share (EPS). So like a ray of sunshine through a gap in the clouds, improving EPS is considered a good sign. It is therefore awe-striking that Kretam Holdings Berhad's EPS went from RM0.00057 to RM0.026 in just one 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). The good news is that Kretam Holdings Berhad is growing revenues, and EBIT margins improved by 15.9 percentage points to 13%, over the last year. That's great to see, on both counts.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

earnings-and-revenue-history
KLSE:KRETAM Earnings and Revenue History July 29th 2021

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 Kretam Holdings Berhad's balance sheet strength, before getting too excited.

Are Kretam Holdings 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 as you can imagine, the fact that Kretam Holdings Berhad insiders own a significant number of shares certainly appeals to me. Indeed, with a collective holding of 53%, company insiders are in control and have plenty of capital behind the venture. 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 RM769m riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!

Should You Add Kretam Holdings Berhad To Your Watchlist?

Kretam Holdings Berhad's earnings per share have taken off like a rocket aimed right at the moon. That sort of growth is nothing short of eye-catching, and the large investment held by insiders certainly brightens my view of the company. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So to my mind Kretam Holdings Berhad is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. Even so, be aware that Kretam Holdings Berhad is showing 1 warning sign in our investment analysis , you should know about...

Although Kretam Holdings 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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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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