If EPS Growth Is Important To You, XMH Holdings (SGX:BQF) Presents An Opportunity

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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.

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 XMH Holdings (SGX:BQF). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide XMH Holdings with the means to add long-term value to shareholders.

See our latest analysis for XMH Holdings

XMH Holdings' Improving Profits

XMH Holdings 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. Thus, it makes sense to focus on more recent growth rates, instead. XMH Holdings' EPS shot up from S$0.027 to S$0.036; a result that's bound to keep shareholders happy. That's a fantastic gain of 32%.

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 XMH Holdings shareholders is that EBIT margins have grown from 5.0% to 7.6% in the last 12 months and revenues are on an upwards trend as well. Both of which are great metrics to check off for potential growth.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

XMH Holdings isn't a huge company, given its market capitalisation of S$31m. That makes it extra important to check on its balance sheet strength.

Are XMH Holdings Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The good news is that XMH Holdings insiders spent a whopping S$8.2m on stock in just one year, without so much as a single sale. The shareholders within the general public should find themselves expectant and certainly hopeful, that this large outlay signals prescient optimism for the business. It is also worth noting that it was Chairman & MD Tin Yeow Tan who made the biggest single purchase, worth S$1.8m, paying S$0.35 per share.

And the insider buying isn't the only sign of alignment between shareholders and the board, since XMH Holdings insiders own more than a third of the company. Indeed, with a collective holding of 83%, company insiders are in control and have plenty of capital behind the venture. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. With that sort of holding, insiders have about S$26m riding on the stock, at current prices. So there's plenty there to keep them focused!

Does XMH Holdings Deserve A Spot On Your Watchlist?

You can't deny that XMH Holdings has grown its earnings per share at a very impressive rate. That's attractive. Not only that, but we can see that insiders both own a lot of, and are buying more shares in the company. Astute investors will want to keep this stock on watch. We don't want to rain on the parade too much, but we did also find 3 warning signs for XMH Holdings (1 doesn't sit too well with us!) that you need to be mindful of.

The good news is that XMH Holdings is not the only growth stock with insider buying. Here's a list of them... 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.