Stock Analysis

Here's Why I Think Rubberex Corporation (M) Berhad (KLSE:RUBEREX) Might Deserve Your Attention Today

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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Rubberex Corporation (M) Berhad (KLSE:RUBEREX). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. 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.

See our latest analysis for Rubberex Corporation (M) Berhad

Rubberex Corporation (M) Berhad's Improving Profits

In business, though not in life, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS). So like the hint of a smile on a face that I love, growing EPS generally makes me look twice. It is therefore awe-striking that Rubberex Corporation (M) Berhad's EPS went from RM0.015 to RM0.096 in just one year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

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 Rubberex Corporation (M) Berhad is growing revenues, and EBIT margins improved by 24.3 percentage points to 31%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

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.

earnings-and-revenue-history
KLSE:RUBEREX Earnings and Revenue History February 9th 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 Rubberex Corporation (M) Berhad's balance sheet strength, before getting too excited.

Are Rubberex Corporation (M) Berhad Insiders Aligned With All Shareholders?

It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. As a result, I'm encouraged by the fact that insiders own Rubberex Corporation (M) Berhad shares worth a considerable sum. To be specific, they have RM165m worth of shares. That's a lot of money, and no small incentive to work hard. Those holdings account for over 13% of the company; visible skin in the game.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, I'd say they are indeed. For companies with market capitalizations between RM814m and RM3.3b, like Rubberex Corporation (M) Berhad, the median CEO pay is around RM1.3m.

The Rubberex Corporation (M) Berhad CEO received RM943k in compensation for the year ending . That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of good governance, more generally.

Should You Add Rubberex Corporation (M) Berhad To Your Watchlist?

Rubberex Corporation (M) Berhad's earnings have taken off like any random crypto-currency did, back in 2017. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The strong EPS improvement suggests the businesses is humming along. Big growth can make big winners, so I do think Rubberex Corporation (M) Berhad is worth considering carefully. We don't want to rain on the parade too much, but we did also find 2 warning signs for Rubberex Corporation (M) Berhad that you need to be mindful of.

Although Rubberex Corporation (M) 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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