We Ran A Stock Scan For Earnings Growth And AppAsia Berhad (KLSE:APPASIA) Passed With Ease

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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 AppAsia Berhad (KLSE:APPASIA). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

See our latest analysis for AppAsia Berhad

AppAsia Berhad's Earnings Per Share Are Growing

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That makes EPS growth an attractive quality for any company. To the delight of shareholders, AppAsia Berhad has achieved impressive annual EPS growth of 40%, compound, over the last three years. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors.

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. We note that while EBIT margins have improved from 1.9% to 9.8%, the company has actually reported a fall in revenue by 62%. While not disastrous, these figures could be better.

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.

Since AppAsia Berhad is no giant, with a market capitalisation of RM109m, you should definitely check its cash and debt before getting too excited about its prospects.

Are AppAsia 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 those who are interested in AppAsia Berhad will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. To be exact, company insiders hold 58% of the company, so their decisions have a significant impact on their investments. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. Of course, AppAsia Berhad is a very small company, with a market cap of only RM109m. So this large proportion of shares owned by insiders only amounts to RM63m. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

Should You Add AppAsia Berhad To Your Watchlist?

AppAsia Berhad's earnings have taken off in quite an impressive fashion. That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. Based on the sum of its parts, we definitely think its worth watching AppAsia Berhad very closely. However, before you get too excited we've discovered 3 warning signs for AppAsia Berhad (1 is potentially serious!) that you should be aware of.

Although AppAsia Berhad certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with insider buying, then check out this handpicked selection of Malaysian companies that not only boast of strong growth but have also seen recent insider buying..

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.