Investors are often guided by the idea of discovering ‘the next big thing’, even if that means buying ‘story stocks’ without any revenue, let alone profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital – so investors should be cautious that they’re not throwing good money after bad.

In contrast to all that, many investors prefer to focus on companies like CTOS Digital Berhad (KLSE:CTOS), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide CTOS Digital Berhad with the means to add long-term value to shareholders.

Check out our latest analysis for CTOS Digital Berhad

How Fast Is CTOS Digital Berhad 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. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. To the delight of shareholders, CTOS Digital Berhad has achieved impressive annual EPS growth of 39%, compound, over the last three years. While that sort of growth rate isn’t sustainable for long, it certainly catches the eye of prospective investors.

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. On the one hand, CTOS Digital Berhad’s EBIT margins fell over the last year, but on the other hand, revenue grew. So it seems the future may hold further growth, especially if EBIT margins can remain steady.

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 CTOS Digital Berhad’s future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are CTOS Digital Berhad 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. Shareholders will be pleased by the fact that insiders own CTOS Digital Berhad shares worth a considerable sum. To be specific, they have RM82m worth of shares. This considerable investment should help drive long-term value in the business. Even though that’s only about 2.5% of the company, it’s enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Story continues

Is CTOS Digital Berhad Worth Keeping An Eye On?

CTOS Digital Berhad’s earnings per share growth have been climbing higher at an appreciable rate. That sort of growth is nothing short of eye-catching, and the large investment held by insiders should certainly brighten the view of the company. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. Based on the sum of its parts, we definitely think its worth watching CTOS Digital Berhad very closely. We should say that we’ve discovered 1 warning sign for CTOS Digital Berhad that you should be aware of before investing here.

Although CTOS Digital Berhad certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of Malaysian companies that not only boast of strong growth but have strong insider backing.

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.

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