For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

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 LHT Holdings (SGX:BEI). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide LHT Holdings with the means to add long-term value to shareholders.

Check out our latest analysis for LHT Holdings

LHT Holdings' Earnings Per Share Are Growing

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Shareholders will be happy to know that LHT Holdings' EPS has grown 36% each year, compound, over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. It was a year of stability for LHT Holdings as both revenue and EBIT margins remained have been flat over the past year. That's not a major concern but nor does it point to the long term growth we like to see.

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

LHT Holdings isn't a huge company, given its market capitalisation of S$43m. That makes it extra important to check on its balance sheet strength.

Are LHT Holdings Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

First things first, there weren't any reports of insiders selling shares in LHT Holdings in the last 12 months. Even better, though, is that the Chairman, Mui Kee Yap, bought a whopping S$441k worth of shares, paying about S$0.70 per share, on average. Purchases like this can offer an insight into the faith of the company's management - and it seems to be all positive.

These recent buys aren't the only encouraging sign for shareholders, as a look at the shareholder registry for LHT Holdings will reveal that insiders own a significant piece of the pie. To be exact, company insiders hold 53% of the company, so their decisions have a significant impact on their investments. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. In terms of absolute value, insiders have S$23m invested in the business, at the current share price. That's nothing to sneeze at!

Does LHT Holdings Deserve A Spot On Your Watchlist?

You can't deny that LHT Holdings has grown its earnings per share at a very impressive rate. That's attractive. Moreover, the management and board of the company hold a significant stake in the company, with one party adding to this total. Astute investors will want to keep this stock on watch. Still, you should learn about the 3 warning signs we've spotted with LHT Holdings (including 1 which makes us a bit uncomfortable).

The good news is that LHT Holdings is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!

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.

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