Here's Why We Think Hong Seng Consolidated Berhad (KLSE:HONGSENG) Is Well Worth Watching

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 currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Hong Seng Consolidated Berhad (KLSE:HONGSENG). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Hong Seng Consolidated Berhad with the means to add long-term value to shareholders.

Check out our latest analysis for Hong Seng Consolidated Berhad

Hong Seng Consolidated Berhad's Improving Profits

Hong Seng Consolidated 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. Thus, it makes sense to focus on more recent growth rates, instead. To the delight of shareholders, Hong Seng Consolidated Berhad's EPS soared from RM0.013 to RM0.019, over the last year. That's a impressive gain of 49%.

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. Hong Seng Consolidated Berhad maintained stable EBIT margins over the last year, all while growing revenue 36% to RM198m. That's a real positive.

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

Since Hong Seng Consolidated Berhad is no giant, with a market capitalisation of RM920m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Hong Seng Consolidated Berhad Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. Shareholders will be pleased by the fact that insiders own Hong Seng Consolidated Berhad shares worth a considerable sum. To be specific, they have RM106m worth of shares. This considerable investment should help drive long-term value in the business. Those holdings account for over 11% of the company; visible skin in the game.

Is Hong Seng Consolidated Berhad Worth Keeping An Eye On?

If you believe that share price follows earnings per share you should definitely be delving further into Hong Seng Consolidated Berhad's strong EPS growth. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in Hong Seng Consolidated Berhad's continuing strength. Fast growth and confident insiders should be enough to warrant further research, so it would seem that it's a good stock to follow. What about risks? Every company has them, and we've spotted 2 warning signs for Hong Seng Consolidated Berhad (of which 1 makes us a bit uncomfortable!) you should know about.

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.