If You Like EPS Growth Then Check Out UOB-Kay Hian Holdings (SGX:U10) Before It's Too Late

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. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

So if you're like me, you might be more interested in profitable, growing companies, like UOB-Kay Hian Holdings (SGX:U10). 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. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for UOB-Kay Hian Holdings

How Quickly Is UOB-Kay Hian Holdings Increasing Earnings Per Share?

As one of my mentors once told me, share price follows earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. As a tree reaches steadily for the sky, UOB-Kay Hian Holdings's EPS has grown 26% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). I note that UOB-Kay Hian Holdings's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. While we note UOB-Kay Hian Holdings's EBIT margins were flat over the last year, revenue grew by a solid 65% to S$537m. That's progress.

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.

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

Are UOB-Kay Hian Holdings Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Although we did see some insider selling (worth -S$3.2k) this was overshadowed by a mountain of buying, totalling S$8.4m in just one year. I find this encouraging because it suggests they are optimistic about the UOB-Kay Hian Holdings's future. It is also worth noting that it was Executive Chairman of the Board & MD Ee-Chao Wee who made the biggest single purchase, worth S$6.7m, paying S$1.07 per share.

The good news, alongside the insider buying, for UOB-Kay Hian Holdings bulls is that insiders (collectively) have a meaningful investment in the stock. Notably, they have an enormous stake in the company, worth S$377m. Coming in at 26% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. Very encouraging.

Does UOB-Kay Hian Holdings Deserve A Spot On Your Watchlist?

For growth investors like me, UOB-Kay Hian Holdings's raw rate of earnings growth is a beacon in the night. On top of that, insiders own a significant stake in the company and have been buying more shares. So I do think this is one stock worth watching. What about risks? Every company has them, and we've spotted 2 warning signs for UOB-Kay Hian Holdings (of which 1 is concerning!) you should know about.

As a growth investor I do like to see insider buying. But UOB-Kay Hian Holdings isn't the only one. You can see a 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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