Investors are often guided by the idea of discovering “the next big thing,” even if that means buying “story stocks” without generating revenue, let alone profit. But as Peter Lynch wrote in One step ahead on Wall Street“Long shots almost never pay off.” Loss-making companies can absorb like a sponge – so investors should be careful not to throw good money after bad.
Although we are in the era of high-sky investing in technology stocks, many investors still follow a more traditional strategy. They buy shares of profitable companies such as Oriental Food Industries Holdings Berhad (KLSE:OFI). Although profit is not the only metric to consider when investing, it is worth identifying companies that can generate it consistently.
View our latest analysis for Oriental Food Industries Holdings Berhad
How quickly does Oriental Food Industries Holdings Berhad grow earnings per share?
Generally speaking, companies that show earnings per share (EPS) growth should show similar share price trends, so it makes sense for sophisticated investors to pay close attention to earnings per share when analyzing investments. Impressively, Oriental Food Industries Holdings Berhad has grown its earnings per share at 33% per year over the past three years. As a general rule, we would say that a company that can keep up The Kind of growth, shareholders will be beaming.
Revenue growth is a good indicator of sustainable growth, and when combined with a high earnings before interest and tax (EBIT) margin, it is a great way for a company to maintain its competitive advantage in the market. Oriental Food Industries Holdings Berhad shareholders can take comfort in the fact that EBIT margins have increased from 6.0% to 12% and revenue is growing. That’s great to see for both reasons.
You can see the company’s revenue and earnings growth trend in the graph below. Click on the graph to see the exact numbers.
Since Oriental Food Industries Holdings Berhad is not a giant, with a market capitalization of RM432 million, you should definitely check its cash levels and debt. Before to be too excited about the prospects.
Are Oriental Food Industries Holdings Berhad insiders aligned with all shareholders?
Many consider high insider ownership to be a strong sign of alignment between company leaders and ordinary shareholders. Interested parties in Oriental Food Industries Holdings Berhad will therefore be pleased to hear that insiders have demonstrated their faith in the company by owning a large proportion of the shares. In fact, they own 57% of the company and will therefore experience the same joys and challenges as ordinary shareholders. This should be viewed as a good thing, as it means that insiders have a vested interest in delivering the best outcome for shareholders. With this kind of ownership, insiders have invested about RM245 million in the stock at the current price. That’s nothing to sneeze at!
It means a lot when insiders invest in the company, but shareholders may wonder if the remuneration policy is in their best interest. Well, based on CEO compensation, one could argue that this is indeed the case. The average total compensation for CEOs of companies similar in size to Oriental Food Industries Holdings Berhad with a market capitalization of under RM899 million is about RM474k.
The CEO of Oriental Food Industries Holdings Berhad only received a total of RM55,000 in compensation in the year to March 2024. One could consider this compensation to be rather tokenistic, suggesting that the CEO does not need high compensation to stay motivated. While the level of CEO compensation should not be the most important factor in how the company is perceived, modest compensation is positive because it suggests that the board has shareholders’ interests in mind. Generally speaking, it can be argued that reasonable pay levels are evidence of good decision-making.
Should you add Oriental Food Industries Holdings Berhad to your watchlist?
For growth investors, Oriental Food Industries Holdings Berhad’s pure earnings growth rate is a bright spot in the night. If you need more than that EPS growth rate to convince you, don’t forget about the reasonable compensation and high insider ownership. Everyone has their own preferences when it comes to investing, but it definitely makes Oriental Food Industries Holdings Berhad seem quite interesting. Don’t forget that there may still be risks. For example, we found 2 warning signs for Oriental Food Industries Holdings Berhad that you should know.
While Oriental Food Industries Holdings Berhad certainly looks good, it could be attractive to more investors if insiders were to snap up shares. If you like to see companies that have more ownership, then check out this handpicked selection of Malaysian companies that not only boast strong growth but also have strong insider support.
Please note that the insider transactions discussed in this article are reportable transactions in the respective jurisdiction.
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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.
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