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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like SDIC Power Holdings (SHSE:600886). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide SDIC Power Holdings with the means to add long-term value to shareholders.

SDIC Power Holdings' Earnings Per Share Are Growing

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That makes EPS growth an attractive quality for any company. We can see that in the last three years SDIC Power Holdings grew its EPS by 9.3% per year. That's a good rate of growth, if it can be sustained.

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. SDIC Power Holdings shareholders can take confidence from the fact that EBIT margins are up from 28% to 32%, and revenue is growing. That's great to see, on both counts.

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

Fortunately, we've got access to analyst forecasts of SDIC Power Holdings' future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are SDIC Power Holdings Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a CN¥128b company like SDIC Power Holdings. But we are reassured by the fact they have invested in the company. We note that their impressive stake in the company is worth CN¥854m. This comes in at 0.7% of shares in the company, which is a fair amount of a business of this size. So despite their percentage holding being low, company management still have plenty of reasons to deliver the best outcomes for investors.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, you'd argue that they are indeed. The median total compensation for CEOs of companies similar in size to SDIC Power Holdings, with market caps over CN¥58b, is around CN¥2.9m.

SDIC Power Holdings offered total compensation worth CN¥1.8m to its CEO in the year to December 2023. That comes in below the average for similar sized companies and seems pretty reasonable. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add SDIC Power Holdings To Your Watchlist?

One important encouraging feature of SDIC Power Holdings is that it is growing profits. The growth of EPS may be the eye-catching headline for SDIC Power Holdings, but there's more to bring joy for shareholders. With company insiders aligning themselves considerably with the company's success and modest CEO compensation, there's no arguments that this is a stock worth looking into. Even so, be aware that SDIC Power Holdings is showing 2 warning signs in our investment analysis , and 1 of those doesn't sit too well with us...

Although SDIC Power Holdings certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of Chinese companies that not only boast of strong growth but have strong insider backing.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com