It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
In contrast to all that, I prefer to spend time on companies like Al Khaleej Takaful Insurance Company Q.P.S.C (DSM:AKHI), which has not only revenues, but also profits. 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. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
How Fast Is Al Khaleej Takaful Insurance Company Q.P.S.C Growing?
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). It's no surprise, then, that I like to invest in companies with EPS growth. It certainly is nice to see that Al Khaleej Takaful Insurance Company Q.P.S.C has managed to grow EPS by 33% 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 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. Not all of Al Khaleej Takaful Insurance Company Q.P.S.C's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. It seems Al Khaleej Takaful Insurance Company Q.P.S.C is pretty stable, since revenue and EBIT margins are pretty flat year on year. That's not a major concern but nor does it point to the long term growth we like to see.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
Since Al Khaleej Takaful Insurance Company Q.P.S.C is no giant, with a market capitalization of ر.ق833m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Al Khaleej Takaful Insurance Company Q.P.S.C 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 we're pleased to report that Al Khaleej Takaful Insurance Company Q.P.S.C insiders own a meaningful share of the business. In fact, they own 38% of the shares, making insiders a very influential shareholder group. I'm always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. In terms of absolute value, insiders have ر.ق317m invested in the business, using the current share price. That should be more than enough to keep them focussed on creating shareholder value!
Does Al Khaleej Takaful Insurance Company Q.P.S.C Deserve A Spot On Your Watchlist?
You can't deny that Al Khaleej Takaful Insurance Company Q.P.S.C has grown its earnings per share at a very impressive rate. That's attractive. Further, the high level of insider ownership impresses me, and suggests that I'm not the only one who appreciates the EPS growth. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. What about risks? Every company has them, and we've spotted 1 warning sign for Al Khaleej Takaful Insurance Company Q.P.S.C 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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