Here's Why We Think KYM Holdings Bhd (KLSE:KYM) 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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

See our latest analysis for KYM Holdings Bhd

How Fast Is KYM Holdings Bhd Growing Its Earnings Per Share?

Investors and investment funds chase profits, and that means share prices tend rise with positive earnings per share (EPS) outcomes. Which is why EPS growth is looked upon so favourably. Commendations have to be given in seeing that KYM Holdings Bhd grew its EPS from RM0.0029 to RM0.08, in one short year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

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. The music to the ears of KYM Holdings Bhd shareholders is that EBIT margins have grown from 1.2% to 12% in the last 12 months and revenues are on an upwards trend as well. Both of which are great metrics to check off for potential growth.

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.

Since KYM Holdings Bhd is no giant, with a market capitalisation of RM92m, you should definitely check its cash and debt before getting too excited about its prospects.

Are KYM Holdings Bhd 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 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. Owning 46% of the company, insiders have plenty riding on the performance of the the share price. Shareholders and speculators should be reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. Of course, KYM Holdings Bhd is a very small company, with a market cap of only RM92m. So despite a large proportional holding, insiders only have RM42m worth of stock. This isn't an overly large holding but it should still keep the insiders motivated to deliver the best outcomes for shareholders.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, you'd argue that they are indeed. The median total compensation for CEOs of companies similar in size to KYM Holdings Bhd, with market caps under RM879m is around RM496k.

KYM Holdings Bhd offered total compensation worth RM392k to its CEO in the year to January 2022. That comes in below the average for similar sized companies and seems pretty reasonable. 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 good governance, more generally.

Should You Add KYM Holdings Bhd To Your Watchlist?

KYM Holdings Bhd's earnings per share have been soaring, with growth rates sky high. An added bonus for those interested is that management hold a heap of stock and the CEO pay is quite reasonable, illustrating good cash management. The strong EPS improvement suggests the businesses is humming along. KYM Holdings Bhd certainly ticks a few boxes, so we think it's probably well worth further consideration. Before you take the next step you should know about the 1 warning sign for KYM Holdings Bhd that we have uncovered.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.