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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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.
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 Shanghai Stonehill Technology (SZSE:002195). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
Shanghai Stonehill Technology's Improving Profits
In the last three years Shanghai Stonehill Technology's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. Thus, it makes sense to focus on more recent growth rates, instead. To the delight of shareholders, Shanghai Stonehill Technology's EPS soared from CN¥0.039 to CN¥0.053, over the last year. That's a commendable gain of 39%.
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. Unfortunately, revenue is down and so are margins. That will not make it easy to grow profits, to say the least.
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
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 Shanghai Stonehill Technology's balance sheet strength, before getting too excited.
Are Shanghai Stonehill Technology Insiders Aligned With All Shareholders?
It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. Shareholders will be pleased by the fact that insiders own Shanghai Stonehill Technology shares worth a considerable sum. To be specific, they have CN¥210m worth of shares. This considerable investment should help drive long-term value in the business. Despite being just 1.6% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
Is Shanghai Stonehill Technology Worth Keeping An Eye On?
For growth investors, Shanghai Stonehill Technology's raw rate of earnings growth is a beacon in the night. With EPS growth rates like that, it's hardly surprising to see company higher-ups place confidence in the company through continuing to hold a significant investment. Fast growth and confident insiders should be enough to warrant further research, so it would seem that it's a good stock to follow. Even so, be aware that Shanghai Stonehill Technology is showing 1 warning sign in our investment analysis , you should know about...
While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in CN with promising growth potential and insider confidence.
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.