Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
So if you're like me, you might be more interested in profitable, growing companies, like Wilmar International $WILMAR INTERNATIONAL LIMITED(F34.SI)$. While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
How Quickly Is Wilmar International Increasing Earnings Per Share?
As one of my mentors once told me, share price follows earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. As a tree reaches steadily for the sky, Wilmar International's EPS has grown 18% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Wilmar International maintained stable EBIT margins over the last year, all while growing revenue 30% to US$66b. That's a real positive.
In the chart below, you can see how the company has grown earnings, and revenue, over time.
SGX:F34 Earnings and Revenue History April 7th 2022
Are Wilmar International Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a S$30b company like Wilmar International. But we do take comfort from the fact that they are investors in the company. Notably, they have an enormous stake in the company, worth US$1.9b. I would find that kind of skin in the game quite encouraging, if I owned shares, since it would ensure that the leaders of the company would also experience my success, or failure, with the stock.
Does Wilmar International Deserve A Spot On Your Watchlist?
You can't deny that Wilmar International has grown its earnings per share at a very impressive rate. That's attractive. I think that EPS growth is something to boast of, and it doesn't surprise me that insiders are holding on to a considerable chunk of shares. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. Still, you should learn about the 2 warning signs we've spotted with Wilmar International (including 1 which is significant) .
Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features.
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