With EPS Growth And More, LB Aluminium Berhad (KLSE:LBALUM) Is Interesting

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in LB Aluminium Berhad (KLSE:LBALUM). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

See our latest analysis for LB Aluminium Berhad

LB Aluminium Berhad's Improving Profits

In a capitalist society capital chases profits, and that means share prices tend rise with earnings per share (EPS). So like a ray of sunshine through a gap in the clouds, improving EPS is considered a good sign. It is therefore awe-striking that LB Aluminium Berhad's EPS went from RM0.0082 to RM0.092 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.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. The good news is that LB Aluminium Berhad is growing revenues, and EBIT margins improved by 5.8 percentage points to 7.3%, over the last year. That's great to see, on both counts.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

LB Aluminium Berhad isn't a huge company, given its market capitalization of RM230m. That makes it extra important to check on its balance sheet strength.

Are LB Aluminium Berhad Insiders Aligned With All Shareholders?

Personally, I like to see high insider ownership of a company, since it suggests that it will be managed in the interests of shareholders. So as you can imagine, the fact that LB Aluminium Berhad insiders own a significant number of shares certainly appeals to me. Indeed, with a collective holding of 51%, company insiders are in control and have plenty of capital behind the venture. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. With that sort of holding, insiders have about RM117m riding on the stock, at current prices. That's nothing to sneeze at!

Should You Add LB Aluminium Berhad To Your Watchlist?

LB Aluminium Berhad's earnings have taken off like any random crypto-currency did, back in 2017. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So to my mind LB Aluminium Berhad is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. What about risks? Every company has them, and we've spotted 4 warning signs for LB Aluminium Berhad (of which 1 is a bit unpleasant!) you should know about.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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.

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