Here's Why We Think Sasbadi Holdings Berhad (KLSE:SASBADI) Is Well Worth Watching

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. 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.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Sasbadi Holdings Berhad (KLSE:SASBADI). 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 Sasbadi Holdings Berhad

How Fast Is Sasbadi Holdings Berhad Growing Its Earnings Per Share?

Sasbadi Holdings Berhad has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. Thus, it makes sense to focus on more recent growth rates, instead. In impressive fashion, Sasbadi Holdings Berhad's EPS grew from RM0.01 to RM0.018, over the previous 12 months. It's not often a company can achieve year-on-year growth of 73%.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. The music to the ears of Sasbadi Holdings Berhad shareholders is that EBIT margins have grown from 9.5% to 12% in the last 12 months and revenues are on an upwards trend as well. Ticking those two boxes is a good sign of growth, in our book.

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

Since Sasbadi Holdings Berhad is no giant, with a market capitalisation of RM72m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Sasbadi Holdings Berhad 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 Sasbadi Holdings Berhad will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. Owning 41% of the company, insiders have plenty riding on the performance of the the share price. 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 RM72m Sasbadi Holdings Berhad is really small for a listed company. So this large proportion of shares owned by insiders only amounts to RM29m. This isn't an overly large holding but it should still keep the insiders motivated to deliver the best outcomes for 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. Our quick analysis into CEO remuneration would seem to indicate they are. The median total compensation for CEOs of companies similar in size to Sasbadi Holdings Berhad, with market caps under RM948m is around RM495k.

The Sasbadi Holdings Berhad CEO received total compensation of only RM40k in the year to August 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. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.

Does Sasbadi Holdings Berhad Deserve A Spot On Your Watchlist?

Sasbadi Holdings Berhad's earnings per share growth have been climbing higher at an appreciable rate. 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 sharp increase in earnings could signal good business momentum. Big growth can make big winners, so the writing on the wall tells us that Sasbadi Holdings Berhad is worth considering carefully. Don't forget that there may still be risks. For instance, we've identified 3 warning signs for Sasbadi Holdings Berhad that you should be aware of.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in MY with promising growth potential and insider confidence.

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.