Here's Why KYM Holdings Bhd (KLSE:KYM) Has Caught The Eye Of Investors

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone 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.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like KYM Holdings Bhd (KLSE:KYM). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

View our latest analysis for KYM Holdings Bhd

KYM Holdings Bhd's Improving Profits

Over the last three years, KYM Holdings Bhd has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. Thus, it makes sense to focus on more recent growth rates, instead. KYM Holdings Bhd boosted its trailing twelve month EPS from RM0.076 to RM0.084, in the last year. That's a 11% gain; respectable growth in the broader scheme of things.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. KYM Holdings Bhd's EBIT margins have fallen over the last twelve months, but the flat revenue sends a message of stability. That doesn't inspire a great deal of confidence.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

Since KYM Holdings Bhd is no giant, with a market capitalisation of RM73m, you should definitely check its cash and debt before getting too excited about its prospects.

Are KYM Holdings Bhd 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 those who are interested in KYM Holdings Bhd will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. In fact, they own 45% of the shares, making insiders a very influential shareholder group. This should be a welcoming sign for investors because it suggests that the people making the decisions are also impacted by their choices. Valued at only RM73m KYM Holdings Bhd is really small for a listed company. That means insiders only have RM33m worth of shares, despite the large proportional holding. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. A brief analysis of the CEO compensation suggests they are. For companies with market capitalisations under RM938m, like KYM Holdings Bhd, the median CEO pay is around RM484k.

The KYM Holdings Bhd CEO received total compensation of only RM148k in the year to January 2023. 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 compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add KYM Holdings Bhd To Your Watchlist?

One important encouraging feature of KYM Holdings Bhd is that it is growing profits. The fact that EPS is growing is a genuine positive for KYM Holdings Bhd, but the pleasant picture gets better than that. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. It is worth noting though that we have found 2 warning signs for KYM Holdings Bhd (1 is a bit concerning!) that you need to take into consideration.

Although KYM Holdings Bhd certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, 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. 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.