For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Unfortunately, these high-risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. While a well-funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in AMMB Holdings Berhad (KLSE:AMBANK). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
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. That means EPS growth is considered a real positive by most successful long-term investors. AMMB Holdings Berhad managed to grow EPS by 16% per year over three years. That's a pretty good rate if the company can sustain it.
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. It's noted that AMMB Holdings Berhad's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. EBIT margins for AMMB Holdings Berhad remained fairly unchanged over the last year; however, the company should be pleased to report its revenue growth for the period of 21% to RM4.7b. That's progress.
While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates for AMMB Holdings Berhad?
It's pleasing to see company leaders 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. AMMB Holdings Berhad followers will find comfort in knowing that insiders have significant capital that aligns their best interests with the wider shareholder group. To be specific, they have RM130m worth of shares. That shows significant buy-in and may indicate conviction in the business strategy. While their ownership only accounts for 0.8%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.