Should You Be Adding Careplus Group Berhad (KLSE:CAREPLS) To Your Watchlist Today?

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Careplus Group Berhad (KLSE:CAREPLS). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

View our latest analysis for Careplus Group Berhad

Careplus Group Berhad's Improving Profits

Over the last three years, Careplus Group Berhad has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. As a result, I'll zoom in on growth over the last year, instead. Like the last firework on New Year's Eve accelerating into the sky, Careplus Group Berhad's EPS shot from RM0.23 to RM0.39, over the last year. You don't see 71% year-on-year growth like that, very often. The best case scenario? That the business has hit a true 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). Careplus Group Berhad shareholders can take confidence from the fact that EBIT margins are up from 26% to 38%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

Careplus Group Berhad isn't a huge company, given its market capitalization of RM440m. That makes it extra important to check on its balance sheet strength.

Are Careplus Group Berhad Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So as you can imagine, the fact that Careplus Group Berhad insiders own a significant number of shares certainly appeals to me. In fact, they own 46% of the shares, making insiders a very influential shareholder group. I'm always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. In terms of absolute value, insiders have RM204m invested in the business, using the current share price. That should be more than enough to keep them focussed on creating shareholder value!

Should You Add Careplus Group Berhad To Your Watchlist?

Careplus Group 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 yes, on this short analysis I do think it's worth considering Careplus Group Berhad for a spot on your watchlist. You should always think about risks though. Case in point, we've spotted 4 warning signs for Careplus Group Berhad you should be aware of, and 1 of them makes us a bit uncomfortable.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like 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.