Stock Analysis

If You Like EPS Growth Then Check Out QAF (SGX:Q01) Before It's Too Late

  •  Updated
SGX:Q01
Source: Shutterstock

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

So if you're like me, you might be more interested in profitable, growing companies, like QAF (SGX:Q01). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

View our latest analysis for QAF

How Quickly Is QAF Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. It's no surprise, then, that I like to invest in companies with EPS growth. We can see that in the last three years QAF grew its EPS by 8.6% per year. That growth rate is fairly good, assuming the company can keep it up.

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). Unfortunately, QAF's revenue dropped 35% last year, but the silver lining is that EBIT margins improved from 3.8% to 8.4%. That's not ideal.

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.

earnings-and-revenue-history
SGX:Q01 Earnings and Revenue History March 3rd 2021

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 QAF's balance sheet strength, before getting too excited.

Are QAF 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, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Not only did QAF insiders refrain from selling stock during the year, but they also spent S$182k buying it. That's nice to see, because it suggests insiders are optimistic. Zooming in, we can see that the biggest insider purchase was by Yuan Liem for S$145k worth of shares, at about S$0.72 per share.

And the insider buying isn't the only sign of alignment between shareholders and the board, since QAF insiders own more than a third of the company. Indeed, with a collective holding of 65%, company insiders are in control and have plenty of capital behind the venture. This makes me think they will be incentivised to plan for the long term - something I like to see. At the current share price, that insider holding is worth a whopping S$359m. Now that's what I call some serious skin in the game!

Does QAF Deserve A Spot On Your Watchlist?

As I already mentioned, QAF is a growing business, which is what I like to see. Better yet, insiders are significant shareholders, and have been buying more shares. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. However, before you get too excited we've discovered 2 warning signs for QAF (1 doesn't sit too well with us!) that you should be aware of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of QAF, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

If you’re looking to trade QAF, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted


Valuation is complex, but we're helping make it simple.

Find out whether QAF is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis