It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
So if you're like me, you might be more interested in profitable, growing companies, like S-Enjoy Service Group (HKG:1755). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
See our latest analysis for S-Enjoy Service Group
How Fast Is S-Enjoy Service Group Growing?
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 ). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Impressively, S-Enjoy Service Group has grown EPS by 36% 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 smiling.
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. While we note S-Enjoy Service Group's EBIT margins were flat over the last year, revenue grew by a solid 52% to CN¥4.4b. That's a real positive.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.SEHK:1755 Earnings and Revenue History May 9th 2022
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for S-Enjoy Service Group.
Are S-Enjoy Service Group Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
It's worth noting that there was some insider selling of S-Enjoy Service Group shares last year, worth -CN¥659k. But that is far less than the large CN¥1.5m share acquisition by Chairman Xiaoming Qi.
And the insider buying isn't the only sign of alignment between shareholders and the board, since S-Enjoy Service Group insiders own more than a third of the company. Indeed, with a collective holding of 69%, company insiders are in control and have plenty of capital behind the venture. This makes me think they will be incentivised to plan for the long term - something I like to see. At the current share price, that insider holding is worth a whopping CN¥4.8b. Now that's what I call some serious skin in the game!
Does S-Enjoy Service Group Deserve A Spot On Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about S-Enjoy Service Group's strong EPS growth. The cranberry sauce on the turkey is that insiders own a bunch of shares, and one has been buying more. So I do think this is one stock worth watching. You still need to take note of risks, for example - S-Enjoy Service Group has 2 warning signs we think you should be aware of.
As a growth investor I do like to see insider buying. But S-Enjoy Service Group isn't the only one. You can see a a free list of them here.
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.