It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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 Kingsmen Creatives (SGX:5MZ). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Kingsmen Creatives with the means to add long-term value to shareholders.

View our latest analysis for Kingsmen Creatives

How Fast Is Kingsmen Creatives Growing Its Earnings Per Share?

Strong earnings per share (EPS) results are an indicator of a company achieving solid profits, which investors look upon favourably and so the share price tends to reflect great EPS performance. So a growing EPS generally brings attention to a company in the eyes of prospective investors. It is awe-striking that Kingsmen Creatives' EPS went from S$0.005 to S$0.023 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note Kingsmen Creatives achieved similar EBIT margins to last year, revenue grew by a solid 20% to S$328m. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

Kingsmen Creatives isn't a huge company, given its market capitalisation of S$63m. That makes it extra important to check on its balance sheet strength.

Are Kingsmen Creatives 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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

It's nice to see that there have been no reports of any insiders selling shares in Kingsmen Creatives in the previous 12 months. So it's definitely nice that Co-Founder & Deputy Executive Chairman Chin Sim Ong bought S$47k worth of shares at an average price of around S$0.23. Decent buying like this could be a sign for shareholders here; management sees the company as undervalued.

Does Kingsmen Creatives Deserve A Spot On Your Watchlist?

Kingsmen Creatives' earnings have taken off in quite an impressive fashion. Growth investors should find it difficult to look past that strong EPS move. And in fact, it could well signal a fundamental shift in the business economics. If this these factors intrigue you, then an addition of Kingsmen Creatives to your watchlist won't go amiss. However, before you get too excited we've discovered 4 warning signs for Kingsmen Creatives (1 is significant!) that you should be aware of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Kingsmen Creatives, 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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