Here’s Why We Think SDS Group Berhad (KLSE:SDS) Might Deserve Your Attention Today

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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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 SDS Group Berhad (KLSE:SDS). While profit isn’t the sole metric that should be considered when investing, it’s worth recognising businesses that can consistently produce it.

See our latest analysis for SDS Group Berhad

How Quickly Is SDS Group Berhad Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Recognition must be given to the that SDS Group Berhad has grown EPS by 55% per year, over the last three years. While that sort of growth rate isn’t sustainable for long, it certainly catches the eye of prospective investors.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it’s a great way for a company to maintain a competitive advantage in the market. EBIT margins for SDS Group Berhad remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 17% to RM316m. That’s progress.

The chart below shows how the company’s bottom and top lines have progressed over time. For finer detail, click on the image.

SDS Group Berhad isn’t a huge company, given its market capitalisation of RM322m. That makes it extra important to check on its balance sheet strength.

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Are SDS Group Berhad Insiders Aligned With All Shareholders?

Theory would suggest that it’s an encouraging sign to see high insider ownership of a company, since it ties company performance directly to the financial success of its management. So as you can imagine, the fact that SDS Group Berhad insiders own a significant number of shares certainly is appealing. In fact, they own 78% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes it apparent they will be incentivised to plan for the long term – a positive for shareholders with a sit and hold strategy. With that sort of holding, insiders have about RM250m riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!

Should You Add SDS Group Berhad To Your Watchlist?

SDS Group Berhad’s earnings have taken off in quite an impressive fashion. This level of EPS growth does wonders for attracting investment, and the large insider investment in the company is just the cherry on top. At times fast EPS growth is a sign the business has reached an inflection point, so there’s a potential opportunity to be had here. So at the surface level, SDS Group Berhad is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. Before you take the next step you should know about the 2 warning signs for SDS Group Berhad that we have uncovered.

There’s always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of Malaysian companies which have demonstrated growth backed by recent insider purchases.

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.