Does XL Holdings Berhad (KLSE:XL) Deserve A Spot On Your Watchlist?
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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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 XL Holdings Berhad (KLSE:XL). 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.
Check out our latest analysis for XL Holdings Berhad
How Fast Is XL Holdings Berhad Growing Its Earnings Per Share?
Strong earnings per share (EPS) results are an indicator of a company achieving solid profits, which investors look upon favourably and so the share price tends to reflect great EPS performance. So a growing EPS generally brings attention to a company in the eyes of prospective investors. It's an outstanding feat for XL Holdings Berhad to have grown EPS from RM0.0072 to RM0.025 in just one year. Even though that growth rate may not be repeated, that looks like a breakout improvement.
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. XL Holdings Berhad's EBIT margins have actually improved by 6.7 percentage points in the last year, to reach 9.0%, but, on the flip side, revenue was down 14%. That falls short of ideal.
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.
Since XL Holdings Berhad is no giant, with a market capitalisation of RM204m, you should definitely check its cash and debt before getting too excited about its prospects.
Are XL Holdings Berhad Insiders Aligned With All Shareholders?
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 those who are interested in XL Holdings Berhad will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. In fact, they own 38% of the shares, making insiders a very influential shareholder group. Those who are comforted by solid insider ownership like this should be happy, as it implies that those running the business are genuinely motivated to create shareholder value. To give you an idea, the value of insiders' holdings in the business are valued at RM78m at the current share price. That's nothing to sneeze at!
It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. Well, based on the CEO pay, you'd argue that they are indeed. For companies with market capitalisations under RM918m, like XL Holdings Berhad, the median CEO pay is around RM488k.
The CEO of XL Holdings Berhad was paid just RM62k in total compensation for the year ending April 2023. You could consider this pay as somewhat symbolic, which suggests the CEO does not need a lot of compensation to stay motivated. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.
Does XL Holdings Berhad Deserve A Spot On Your Watchlist?
XL Holdings Berhad's earnings per share have been soaring, with growth rates sky high. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The sharp increase in earnings could signal good business momentum. XL Holdings Berhad certainly ticks a few boxes, so we think it's probably well worth further consideration. However, before you get too excited we've discovered 2 warning signs for XL Holdings Berhad that you should be aware of.
Although XL Holdings Berhad certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with insider buying, then check out this handpicked selection of Malaysian companies that not only boast of strong growth but have also seen recent insider buying..
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.