Stock Analysis

Is Now The Time To Put QAF (SGX:Q01) On Your Watchlist?

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SGX:Q01
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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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

In contrast to all that, I prefer to spend time on companies like QAF (SGX:Q01), which has not only revenues, but also profits. While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. 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

QAF's Earnings Per Share Are Growing.

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That makes EPS growth an attractive quality for any company. QAF managed to grow EPS by 8.6% per year, over three years. That's a good rate of growth, if it can be sustained.

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. QAF shareholders can take confidence from the fact that EBIT margins are up from 4.1% to 9.2%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
SGX:Q01 Earnings and Revenue History June 2nd 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 that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The good news for QAF shareholders is that no insiders reported selling shares in the last year. So it's definitely nice that Joint Group MD & Executive Director Lin Kejian bought S$37k worth of shares at an average price of around S$0.78.

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 64%, company insiders are in control and have plenty of capital behind the venture. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. At the current share price, that insider holding is worth a whopping S$354m. That means they have plenty of their own capital riding on the performance of the business!

Should You Add QAF To Your Watchlist?

As I already mentioned, QAF is a growing business, which is what I like to see. On top of that, we've seen insiders buying shares even though they already own plenty. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. You still need to take note of risks, for example - QAF has 2 warning signs (and 1 which is potentially serious) we think you should know about.

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.

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