For some speculators, the excitement of investing in a company that has the potential to reverse its fortunes is a big draw, so even a company with no revenue or profits and an underperforming track record can still manage to find investors. You can. Unfortunately, these high-risk investments often have little chance of return, and many investors pay a price to learn their lesson. Loss-making companies are not yet profitable, so the inflow of external capital may eventually dry up.
So if this idea of high risk and high reward doesn’t suit you, you might be interested in a profitable growth company like Singapore Exchange (SGX:S68). Even if the company is fairly valued by the market, investors would agree that generating consistent profits continues to provide Singapore Exchange with the means to add long-term value to shareholders.
Check out our latest analysis for Singapore Exchange.
If you believe that markets are even vaguely efficient, you would expect a company’s stock price to follow its earnings per share (EPS) results in the long run. That makes EPS growth an attractive quality for any company. Singapore Exchange managed to increase its EPS by 10% per year over three years. This is a pretty good rate if the company can maintain it.
One way to double-check a company’s growth is to look at how its revenue and earnings before interest, tax, and tax (EBIT) margins are changing. Singapore Exchange maintained stable EBIT margins last year, with revenue increasing 3.1% to S$1.2 billion. That’s a really positive thing.
The graph below shows how the company’s revenue and revenue have trended over time. Click on the graph to see exact numbers.
The trick, of course, is to find stocks whose best times are in the future, not the past. Of course you can base your opinion on past performance, but you can also check out this interactive graph of EPS forecasts made by professional analysts at Singapore Exchange.
We wouldn’t expect insiders to own a large proportion of a S$13b company like Singapore Exchange. But we take comfort in the fact that they are investors in the company. Owning S$109m worth of shares in the company is no laughing matter, and insiders will be committed to delivering the best outcome for shareholders. This may indicate that the goals of shareholders and management are the same.
One of the key encouraging characteristics of the Singapore Exchange is that its profits are increasing. Adding to the spark, another highlight is the significant insider ownership within the company. The combination is very attractive. Yes, we think this stock is worth watching. Once you’ve identified a business you like, the next step is to consider what value you see in it. Now is your chance to take a look at Singapore Exchange’s special discounted cash flow valuation. It might be helpful to take a look today.
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