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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Oversea-Chinese Banking (SGX:O39). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
View our latest analysis for Oversea-Chinese Banking
Oversea-Chinese Banking's Earnings Per Share Are Growing
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. Shareholders will be happy to know that Oversea-Chinese Banking's EPS has grown 20% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.
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. Not all of Oversea-Chinese Banking's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. Oversea-Chinese Banking maintained stable EBIT margins over the last year, all while growing revenue 28% to S$12b. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
Fortunately, we've got access to analyst forecasts of Oversea-Chinese Banking's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Oversea-Chinese Banking Insiders Aligned With All Shareholders?
Since Oversea-Chinese Banking has a market capitalisation of S$57b, we wouldn't expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. Notably, they have an enviable stake in the company, worth S$192m. We note that this amounts to 0.3% of the company, which may be small owing to the sheer size of Oversea-Chinese Banking but it's still worth mentioning. So despite their percentage holding being low, company management still have plenty of reasons to deliver the best outcomes for investors.
Does Oversea-Chinese Banking Deserve A Spot On Your Watchlist?
You can't deny that Oversea-Chinese Banking has grown its earnings per share at a very impressive rate. That's attractive. This EPS growth rate is something the company should be proud of, and so it's no surprise that insiders are holding on to a considerable chunk of shares. 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. You still need to take note of risks, for example - Oversea-Chinese Banking has 1 warning sign we think you should be aware of.
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 free list of them here.
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.