Here's Why I Think Rapid Synergy Berhad (KLSE:RAPID) Might Deserve Your Attention Today

By
Simply Wall St
Published
May 31, 2021
KLSE:RAPID
Source: Shutterstock

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. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

So if you're like me, you might be more interested in profitable, growing companies, like Rapid Synergy Berhad (KLSE:RAPID). 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. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for Rapid Synergy Berhad

How Fast Is Rapid Synergy Berhad Growing?

As one of my mentors once told me, share price follows earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Rapid Synergy Berhad has managed to grow EPS by 21% per year over three years. So it's not surprising to see the company trades on a very high multiple of (past) earnings.

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. The good news is that Rapid Synergy Berhad is growing revenues, and EBIT margins improved by 20.6 percentage points to 45%, 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. To see the actual numbers, click on the chart.

earnings-and-revenue-history
KLSE:RAPID Earnings and Revenue History June 1st 2021

Rapid Synergy Berhad isn't a huge company, given its market capitalization of RM861m. That makes it extra important to check on its balance sheet strength.

Are Rapid Synergy 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 Rapid Synergy Berhad insiders own a significant number of shares certainly appeals to me. Actually, with 48% of the company to their names, insiders are profoundly invested in the business. I'm reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. In terms of absolute value, insiders have RM415m invested in the business, using the current share price. That should be more than enough to keep them focussed on creating shareholder value!

Should You Add Rapid Synergy Berhad To Your Watchlist?

For growth investors like me, Rapid Synergy Berhad's raw rate of earnings growth is a beacon in the night. Further, the high level of insider ownership impresses me, and suggests that I'm not the only one who appreciates the EPS growth. Fast growth and confident insiders should be enough to warrant further research. So the answer is that I do think this is a good stock to follow along with. However, before you get too excited we've discovered 2 warning signs for Rapid Synergy Berhad (1 can't be ignored!) that you should be aware of.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

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

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