I Ran A Stock Scan For Earnings Growth And Multi-Chem (SGX:AWZ) Passed With Ease

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. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Multi-Chem (SGX:AWZ). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

Check out our latest analysis for Multi-Chem

How Quickly Is Multi-Chem Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. As a tree reaches steadily for the sky, Multi-Chem's EPS has grown 17% 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). While we note Multi-Chem's EBIT margins were flat over the last year, revenue grew by a solid 5.2% to S$480m. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

Since Multi-Chem is no giant, with a market capitalization of S$144m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Multi-Chem 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. Because oftentimes, 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.

Like a sturdy phalanx Multi-Chem insiders have stood united by refusing to sell shares over the last year. But the bigger deal is that the Founder, Suan Sai Foo, paid S$121k to buy shares at an average price of S$1.20.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Multi-Chem insiders own more than a third of the company. In fact, they own 83% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. To me 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$120m riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!

Should You Add Multi-Chem To Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Multi-Chem's strong EPS growth. The cranberry sauce on the turkey is that insiders own a bunch of shares, and one has been buying more. So it's fair to say I think this stock may well deserve a spot on your watchlist. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Multi-Chem 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 Multi-Chem, 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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This article by Simply Wall St is general in nature. 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.
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