The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital – so investors should be cautious that they’re not throwing good money after bad.
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 KAL Group (JSE:KAL). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide KAL Group with the means to add long-term value to shareholders.
View our latest analysis for KAL Group
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 makes EPS growth an attractive quality for any company. KAL Group managed to grow EPS by 12% per year, over three years. That’s a good rate of growth, if it can be sustained.
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. EBIT margins for KAL Group remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 8.5% to R22b. That’s encouraging news for the company!
You can take a look at the company’s revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
KAL Group isn’t a huge company, given its market capitalisation of R3.4b. That makes it extra important to check on its balance sheet strength.
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. That’s because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don’t always get it right.
One positive for KAL Group, is that company insiders spent R226k acquiring shares in the last year. While this investment may be modest, it is great considering the lack of insider selling.
