Here's Why We Think Saudi Chemical Holding (TADAWUL:2230) Is Well Worth Watching

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like Saudi Chemical Holding (TADAWUL:2230), which has not only revenues, but also profits. 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 Saudi Chemical Holding

Saudi Chemical Holding's Improving Profits

Saudi Chemical Holding 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. So it would be better to isolate the growth rate over the last year for our analysis. Outstandingly, Saudi Chemical Holding's EPS shot from ر.س0.14 to ر.س0.39, over the last year. It's not often a company can achieve year-on-year growth of 178%. That could be a sign that the business has reached a true inflection point.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. The music to the ears of Saudi Chemical Holding shareholders is that EBIT margins have grown from 5.6% to 7.8% in the last 12 months and revenues are on an upwards trend as well. 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. Click on the chart to see the exact numbers.

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Saudi Chemical Holding Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. Saudi Chemical Holding followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. Indeed, they have a considerable amount of wealth invested in it, currently valued at ر.س1.0b. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.

Is Saudi Chemical Holding Worth Keeping An Eye On?

Saudi Chemical Holding's earnings per share have been soaring, with growth rates sky high. That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. Based on the sum of its parts, we definitely think its worth watching Saudi Chemical Holding very closely. You still need to take note of risks, for example - Saudi Chemical Holding has 1 warning sign we think you should be aware of.

Although Saudi Chemical Holding certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of Saudi companies that not only boast of strong growth but have strong insider backing.

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.