We Ran A Stock Scan For Earnings Growth And Sembcorp Industries (SGX:U96) Passed With Ease

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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. 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 Sembcorp Industries (SGX:U96). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Sembcorp Industries with the means to add long-term value to shareholders.

See our latest analysis for Sembcorp Industries

Sembcorp Industries' 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) outcomes. That makes EPS growth an attractive quality for any company. It certainly is nice to see that Sembcorp Industries has managed to grow EPS by 28% per year over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. On the revenue front, Sembcorp Industries has done well over the past year, growing revenue by 51% to S$9.3b but EBIT margin figures were less stellar, seeing a decline over the last 12 months. So if EBIT margins can stabilize, this top-line growth should pay off for shareholders.

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.

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Sembcorp Industries' future profits.

Are Sembcorp Industries Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Sembcorp Industries insiders have a significant amount of capital invested in the stock. As a matter of fact, their holding is valued at S$37m. This considerable investment should help drive long-term value in the business. Despite being just 0.6% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Does Sembcorp Industries Deserve A Spot On Your Watchlist?

For growth investors, Sembcorp Industries' raw rate of earnings growth is a beacon in the night. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in Sembcorp Industries' continuing strength. The growth and insider confidence is looked upon well and so it's worthwhile to investigate further with a view to discern the stock's true value. However, before you get too excited we've discovered 2 warning signs for Sembcorp Industries that you should be aware of.

Although Sembcorp Industries certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.