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.' 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 China Chunlai Education Group (HKG:1969). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
View our latest analysis for China Chunlai Education Group
How Fast Is China Chunlai Education Group Growing Its Earnings Per Share?
In the last three years China Chunlai Education Group'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. As a result, we'll zoom in on growth over the last year, instead. Impressively, China Chunlai Education Group's EPS catapulted from CN¥0.19 to CN¥0.58, over the last year. Year on year growth of 197% is certainly a sight to behold. That could be a sign that the business has reached a true inflection point.
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. The good news is that China Chunlai Education Group is growing revenues, and EBIT margins improved by 4.1 percentage points to 48%, over the last year. That's great to see, on both counts.
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.SEHK:1969 Earnings and Revenue History July 11th 2022
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 China Chunlai Education Group's balance sheet strength, before getting too excited.
Are China Chunlai Education Group Insiders Aligned With All Shareholders?
Theory would suggest that it's an encouraging sign to see high insider ownership of a company, since it ties company performance directly to the financial success of its management. So those who are interested in China Chunlai Education Group will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. In fact, they own 75% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. This insider holding amounts to This is an incredible endorsement from them.
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. The median total compensation for CEOs of companies similar in size to China Chunlai Education Group, with market caps between CN¥1.3b and CN¥5.4b, is around CN¥2.6m.
China Chunlai Education Group's CEO took home a total compensation package worth CN¥1.6m in the year leading up to August 2021. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Should You Add China Chunlai Education Group To Your Watchlist?
China Chunlai Education Group's earnings have taken off in quite an impressive fashion. 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. China Chunlai Education Group is certainly doing some things right and is well worth investigating. You should always think about risks though. Case in point, we've spotted 2 warning signs for China Chunlai Education Group you should be aware of.
The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.
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.