Do Hor Kew's (SGX:BBP) Earnings Warrant Your Attention?

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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 Hor Kew (SGX:BBP). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for Hor Kew

Hor Kew's Improving Profits

In the last three years Hor Kew's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. As a result, I'll zoom in on growth over the last year, instead. Like a firecracker arcing through the night sky, Hor Kew's EPS shot from S$0.063 to S$0.11, over the last year. Year on year growth of 73% is certainly a sight to behold.

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. While we note Hor Kew's EBIT margins were flat over the last year, revenue grew by a solid 21% to S$63m. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

Since Hor Kew is no giant, with a market capitalization of S$12m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Hor Kew 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 as you can imagine, the fact that Hor Kew insiders own a significant number of shares certainly appeals to me. In fact, they own 44% 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. Of course, Hor Kew is a very small company, with a market cap of only S$12m. So despite a large proportional holding, insiders only have S$5.5m worth of stock. That might not be a huge sum but it should be enough to keep insiders motivated!

Does Hor Kew Deserve A Spot On Your Watchlist?

Hor Kew's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. That sort of growth is nothing short of eye-catching, and the large investment held by insiders certainly brightens my view of the company. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So yes, on this short analysis I do think it's worth considering Hor Kew for a spot on your watchlist. Don't forget that there may still be risks. For instance, we've identified 3 warning signs for Hor Kew (2 can't be ignored) you should be aware of.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

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.