Is Now The Time To Put SDS Group Berhad (KLSE:SDS) 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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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.

In contrast to all that, many investors prefer to focus on companies like SDS Group Berhad (KLSE:SDS), which has not only revenues, but also profits. Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

View our latest analysis for SDS Group Berhad

SDS Group Berhad's Improving Profits

SDS Group Berhad has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. As a result, we'll zoom in on growth over the last year, instead. SDS Group Berhad's EPS has risen over the last 12 months, growing from RM0.071 to RM0.085. That's a 20% gain; respectable growth in the broader scheme of things.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. SDS Group Berhad maintained stable EBIT margins over the last year, all while growing revenue 9.5% to RM346m. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

SDS Group Berhad isn't a huge company, given its market capitalisation of RM451m. That makes it extra important to check on its balance sheet strength.

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 as you can imagine, the fact that SDS Group Berhad insiders own a significant number of shares certainly is appealing. To be exact, company insiders hold 80% of the company, so their decisions have a significant impact on their investments. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. To give you an idea, the value of insiders' holdings in the business are valued at RM362m at the current share price. That should be more than enough to keep them focussed on creating shareholder value!

Should You Add SDS Group Berhad To Your Watchlist?

One important encouraging feature of SDS Group Berhad is that it is growing profits. If that's not enough on its own, there is also the rather notable levels of insider ownership. The combination definitely favoured by investors so consider keeping the company on a watchlist. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if SDS Group Berhad is trading on a high P/E or a low P/E, relative to its industry.

Although SDS Group Berhad certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of Malaysian companies that not only boast of strong growth but have strong insider backing.

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.