Do AnnAik's (Catalist:A52) Earnings Warrant Your Attention?

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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

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 AnnAik (Catalist:A52). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide AnnAik with the means to add long-term value to shareholders.

See our latest analysis for AnnAik

AnnAik's Earnings Per Share Are Growing

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That makes EPS growth an attractive quality for any company. Recognition must be given to the that AnnAik has grown EPS by 53% per year, 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. AnnAik shareholders can take confidence from the fact that EBIT margins are up from 3.1% to 5.5%, and revenue is growing. That's great to see, on both counts.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

AnnAik isn't a huge company, given its market capitalisation of S$21m. That makes it extra important to check on its balance sheet strength.

Are AnnAik Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Shareholders in AnnAik will be more than happy to see insiders committing themselves to the company, spending S$504k on shares in just twelve months. When you contrast that with the complete lack of sales, it's easy for shareholders to be brimming with joyful expectancy. Zooming in, we can see that the biggest insider purchase was by COO, Finance Director & Executive Director Kim Keang Ng for S$102k worth of shares, at about S$0.07 per share.

And the insider buying isn't the only sign of alignment between shareholders and the board, since AnnAik insiders own more than a third of the company. To be exact, company insiders hold 62% 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. Valued at only S$21m AnnAik is really small for a listed company. So this large proportion of shares owned by insiders only amounts to S$13m. This isn't an overly large holding but it should still keep the insiders motivated to deliver the best outcomes for shareholders.

Does AnnAik Deserve A Spot On Your Watchlist?

AnnAik's earnings have taken off in quite an impressive fashion. Just as heartening; insiders both own and are buying more stock. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest AnnAik belongs near the top of your watchlist. It's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with AnnAik (at least 1 which is significant) , and understanding them should be part of your investment process.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of AnnAik, you'll probably love this free list of growing companies that insiders are buying.

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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