Is Now The Time To Put Fiamma Holdings Berhad (KLSE:FIAMMA) On Your Watchlist?

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.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Fiamma Holdings Berhad (KLSE:FIAMMA). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

See our latest analysis for Fiamma Holdings Berhad

How Quickly Is Fiamma Holdings Berhad Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That makes EPS growth an attractive quality for any company. It certainly is nice to see that Fiamma Holdings Berhad has managed to grow EPS by 17% per year over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). The good news is that Fiamma Holdings Berhad is growing revenues, and EBIT margins improved by 4.6 percentage points to 18%, over the last year. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

Fiamma Holdings Berhad isn't a huge company, given its market capitalization of RM283m. That makes it extra important to check on its balance sheet strength.

Are Fiamma Holdings Berhad 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 as you can imagine, the fact that Fiamma Holdings Berhad insiders own a significant number of shares certainly appeals to me. Indeed, with a collective holding of 65%, company insiders are in control and have plenty of capital behind the venture. This makes me think they will be incentivised to plan for the long term - something I like to see. With that sort of holding, insiders have about RM185m riding on the stock, at current prices. That's nothing to sneeze at!

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. A brief analysis of the CEO compensation suggests they are. I discovered that the median total compensation for the CEOs of companies like Fiamma Holdings Berhad with market caps under RM825m is about RM580k.

The CEO of Fiamma Holdings Berhad was paid just RM94k in total compensation for the year ending . You could consider this pay as somewhat symbolic, which suggests the CEO does not need a lot of compensation to stay motivated. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of good governance, more generally.

Does Fiamma Holdings Berhad Deserve A Spot On Your Watchlist?

For growth investors like me, Fiamma Holdings Berhad's raw rate of earnings growth is a beacon in the night. If that's not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. Each to their own, but I think all this makes Fiamma Holdings Berhad look rather interesting indeed. What about risks? Every company has them, and we've spotted 3 warning signs for Fiamma Holdings Berhad (of which 1 makes us a bit uncomfortable!) you should know about.

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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This article by Simply Wall St is general in nature. 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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