Here's Why We Think Analabs Resources Berhad (KLSE:ANALABS) Is Well Worth Watching

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. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

So if you're like me, you might be more interested in profitable, growing companies, like Analabs Resources Berhad (KLSE:ANALABS). 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.

Check out our latest analysis for Analabs Resources Berhad

How Fast Is Analabs Resources Berhad Growing?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Over the last three years, Analabs Resources Berhad has grown EPS by 13% per year. That growth rate is fairly good, assuming the company can keep it up.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. While revenue is looking a bit flat, the good news is EBIT margins improved by 8.0 percentage points to 8.9%, in the last twelve months. 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.

Analabs Resources Berhad isn't a huge company, given its market capitalization of RM124m. That makes it extra important to check on its balance sheet strength.

Are Analabs Resources 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 Analabs Resources Berhad insiders own a significant number of shares certainly appeals to me. In fact, they own 90% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. In terms of absolute value, insiders have RM112m invested in the business, using the current share price. That's nothing to sneeze at!

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I'd say they are indeed. I discovered that the median total compensation for the CEOs of companies like Analabs Resources Berhad with market caps under RM825m is about RM581k.

The Analabs Resources Berhad CEO received total compensation of only RM31k in the year to . This could be considered a token amount, and indicates that the company does not need to use payment to motivate the CEO - that is often a good sign. 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 a culture of integrity, in a broader sense.

Should You Add Analabs Resources Berhad To Your Watchlist?

One important encouraging feature of Analabs Resources Berhad is that it is growing profits. Earnings growth might be the main game for Analabs Resources Berhad, but the fun does not stop there. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. We should say that we've discovered 3 warning signs for Analabs Resources Berhad (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

Although Analabs Resources 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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This article by Simply Wall St is general in nature. 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.
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