Do Makkah Construction & Development's (TADAWUL:4100) Earnings Warrant Your Attention?

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Makkah Construction & Development (TADAWUL:4100). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Makkah Construction & Development with the means to add long-term value to shareholders.

Check out our latest analysis for Makkah Construction & Development

How Fast Is Makkah Construction & Development Growing Its Earnings Per Share?

Makkah Construction & Development 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, Makkah Construction & Development's EPS shot from ر.س0.73 to ر.س1.73, over the last year. It's a rarity to see 137% year-on-year growth like that. The best case scenario? That the business has hit a true inflection point.

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. Makkah Construction & Development shareholders can take confidence from the fact that EBIT margins are up from 38% to 43%, and revenue is growing. That's great to see, on both counts.

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Makkah Construction & Development's balance sheet strength, before getting too excited.

Are Makkah Construction & Development Insiders Aligned With All Shareholders?

It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. Makkah Construction & Development followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. Given insiders own a significant chunk of shares, currently valued at ر.س337m, they have plenty of motivation to push the business to succeed. This should keep them focused on creating long term value for shareholders.

Does Makkah Construction & Development Deserve A Spot On Your Watchlist?

Makkah Construction & Development'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. So based on this quick analysis, we do think it's worth considering Makkah Construction & Development for a spot on your watchlist. Before you take the next step you should know about the 1 warning sign for Makkah Construction & Development that we have uncovered.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in SA with promising growth potential and insider confidence.

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.