Here's Why Casa Holdings (SGX:C04) Has Caught The Eye Of Investors

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.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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 Casa Holdings (SGX:C04). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

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Casa Holdings' Earnings Per Share Are Growing

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That makes EPS growth an attractive quality for any company. Impressively, Casa Holdings has grown EPS by 36% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Casa Holdings' EBIT margins are flat but, worryingly, its revenue is actually down. This does not bode too well for short term growth prospects and so understanding the reasons for these results is of great importance.

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.

Check out our latest analysis for Casa Holdings

Since Casa Holdings is no giant, with a market capitalisation of S$29m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Casa Holdings Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

The first bit of good news is that no Casa Holdings insiders reported share sales in the last twelve months. But the important part is that company insider Chow Hou Wee spent S$1.0m buying stock, at an average price of S$2.91. It seems at least one insider thinks that the company is doing well - and they are backing that view with cash.

On top of the insider buying, we can also see that Casa Holdings insiders own a large chunk of the company. In fact, they own 78% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. To give you an idea, the value of insiders' holdings in the business are valued at S$23m at the current share price. That should be more than enough to keep them focussed on creating shareholder value!

Does Casa Holdings Deserve A Spot On Your Watchlist?

You can't deny that Casa Holdings has grown its earnings per share at a very impressive rate. That's attractive. On top of that, insiders own a significant piece of the pie when it comes to the company's stock, and one has been buying more. These things considered, this is one stock worth watching. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Casa Holdings that you should be aware of.

Keen growth investors love to see insider activity. Thankfully, Casa Holdings isn't the only one. You can see a a curated list of Singaporean companies which have exhibited consistent growth accompanied by high insider ownership.

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.