It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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.
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 Anhui Tongfeng Electronics (SHSE:600237). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Anhui Tongfeng Electronics with the means to add long-term value to shareholders.
See our latest analysis for Anhui Tongfeng Electronics
Anhui Tongfeng Electronics' Improving Profits
Anhui Tongfeng Electronics has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. Thus, it makes sense to focus on more recent growth rates, instead. Anhui Tongfeng Electronics' EPS has risen over the last 12 months, growing from CN¥0.11 to CN¥0.12. There's little doubt shareholders would be happy with that 11% gain.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. It's noted that, last year, Anhui Tongfeng Electronics' revenue from operations was lower than its revenue, so that could distort our analysis of its margins. While we note Anhui Tongfeng Electronics achieved similar EBIT margins to last year, revenue grew by a solid 4.0% to CN¥1.1b. That's progress.
In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Anhui Tongfeng Electronics' forecast profits?
Are Anhui Tongfeng Electronics Insiders Aligned With All Shareholders?
Prior to investment, it's always a good idea to check that the management team is paid reasonably. Pay levels around or below the median, can be a sign that shareholder interests are well considered. The median total compensation for CEOs of companies similar in size to Anhui Tongfeng Electronics, with market caps between CN¥2.9b and CN¥12b, is around CN¥1.1m.
The Anhui Tongfeng Electronics CEO received CN¥765k in compensation for the year ending December 2022. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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.
Does Anhui Tongfeng Electronics Deserve A Spot On Your Watchlist?
As previously touched on, Anhui Tongfeng Electronics is a growing business, which is encouraging. On top of that, our faith in the board of directors is strengthened by the fact of the reasonable CEO pay. All things considered, Anhui Tongfeng Electronics is definitely worth taking a deeper dive into. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Anhui Tongfeng Electronics that you should be aware of.
Although Anhui Tongfeng Electronics certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.
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.
