Does Three-A Resources Berhad (KLSE:3A) deserve a spot on your watchlist?

For beginners, it may seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it doesn’t currently have a track record of revenues and profits. But as Peter Lynch said in One on Wall Street“Penalty shootouts almost never pay off.” A loss-making company still has to prove that it is profitable, and eventually the flow of external capital may dry up.

In contrast to all this, many investors prefer to focus on companies such as Three-A Resources Berhad (KLSE:3A), which has not only revenues but also profits. While that doesn’t necessarily indicate whether it’s undervalued, the profitability of the business is enough to justify some appreciation – especially if it’s growing.

See our latest analysis for Three-A Resources Berhad

How fast is Three-A Resources Berhad growing?

If you believe that markets are even somewhat efficient, then over the long term you would expect a company’s share price to follow its earnings per share (EPS) performance. This makes EPS growth an attractive trait for any company. Over the past three years, Three-A Resources Berhad has grown its EPS by 9.7% per year. This is a pretty good growth rate, assuming the company can maintain it.

Revenue growth is a great indicator that growth is sustainable, and when combined with a high earnings before interest and tax (EBIT) margin, it’s a great way for the company to maintain a competitive edge in the market. We note that while EBIT margins improved from 4.9% to 11%, the company actually saw revenue decline by 7.3%. This is far from ideal.

In the chart below, you can see how the company has grown its profits and revenues over time. For more details, click on the image.

Three-A Resources Berhad is not a huge company, given its market capitalisation of RM443m. This makes it particularly important to check the strength of its balance sheet.

Are Three-A Resources Berhad insiders related to all shareholders?

Theory suggests that it is an encouraging sign that there is a high level of insider ownership in a company, as it directly links the company’s performance to the financial success of its management. So, those interested in Three-A Resources Berhad will be delighted to know that insiders have demonstrated their conviction by owning a significant portion of the company’s shares. With a 46% stake in the company, insiders have a lot to offer based on the share price performance. This should be a good sign for investors, as it suggests that the decision makers are also affected by their choices. In terms of absolute value, insiders have invested RM201 million in the company at the current share price. This should be more than enough to focus on creating shareholder value!

The story continues

Does Three-A Resources Berhad deserve a spot on your watchlist?

One of the advantages of Three-A Resources Berhad is that it is growing EPS. It is good to see that. To add spark to the fire, significant insider ownership in the company is another advantage. This combination is very attractive. So yes, we think the stock is worth considering. Now you can try to make a decision about Three-A Resources Berhad by focusing only on these factors, Or you could Also consider how the company’s price-to-earnings ratio compares to other companies in the industry.

While picking stocks that aren’t growing their earnings and aren’t being bought by insiders can yield results, for investors who value these key metrics, we’ve put together a carefully selected list of companies in MY that have promising growth potential and insider confidence.

Please note that the confidential transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This Simply Wall St article is for general information purposes only. Our commentary is based solely on historical data and analyst forecasts, and is based on an objective methodology. Our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or your financial situation. Our goal is to provide you with long-term, focused analysis based on fundamental data. Please note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.