Investors are often guided by the idea of discovering ‘the next big thing’, even if that means buying ‘story stocks’ without any revenue, let alone profit. 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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

In contrast to all that, many investors prefer to focus on companies like Oriental Holdings Berhad (KLSE:ORIENT), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Oriental Holdings Berhad with the means to add long-term value to shareholders.

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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. Impressively, Oriental Holdings Berhad has grown EPS by 22% per year, compound, in the last three years. As a general rule, we’d say that if a company can keep up that sort of growth, shareholders will be beaming.

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. Oriental Holdings Berhad shareholders can take confidence from the fact that EBIT margins are up from 13% to 18%, and revenue is growing. Ticking those two boxes is a good sign of growth, in our book.

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

View our latest analysis for Oriental Holdings Berhad

While it’s always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Oriental Holdings Berhad’s balance sheet strength, before getting too excited.

Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there’s less of a probability in a sudden sell-off that would impact the share price. So we’re pleased to report that Oriental Holdings Berhad insiders own a meaningful share of the business. Owning 49% of the company, insiders have plenty riding on the performance of the the share price. Shareholders and speculators should be reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. RM2.1b This is an incredible endorsement from them.