Here's Why We Think SDS Group Berhad (KLSE:SDS) Is Well Worth Watching

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like SDS Group Berhad (KLSE:SDS). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide SDS Group Berhad with the means to add long-term value to shareholders.

See our latest analysis for SDS Group Berhad

SDS Group Berhad's Improving Profits

Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So it's no surprise that some investors are more inclined to invest in profitable businesses. To the delight of shareholders, SDS Group Berhad's EPS soared from RM0.018 to RM0.026, over the last year. That's a impressive gain of 45%.

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. While we note SDS Group Berhad achieved similar EBIT margins to last year, revenue grew by a solid 14% to RM198m. That's encouraging news for the company!

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

Since SDS Group Berhad is no giant, with a market capitalisation of RM186m, you should definitely check its cash and debt before getting too excited about its prospects.

Are SDS Group 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 SDS Group Berhad insiders own a meaningful share of the business. To be exact, company insiders hold 76% of the company, so their decisions have a significant impact on their investments. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. With that sort of holding, insiders have about RM142m riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!

Should You Add SDS Group Berhad To Your Watchlist?

For growth investors, SDS Group Berhad's raw rate of earnings growth is a beacon in the night. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in SDS Group Berhad's continuing strength. On the balance of its merits, solid EPS growth and company insiders who are aligned with the shareholders would indicate a business that is worthy of further research. We don't want to rain on the parade too much, but we did also find 2 warning signs for SDS Group Berhad 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 free list of them here.

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.