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. 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. 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.
In contrast to all that, many investors prefer to focus on companies like Kunming Chuan Jin Nuo Chemical (SZSE:300505), which has not only revenues , but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Kunming Chuan Jin Nuo Chemical with the means to add long-term value to shareholders.
Check out our latest analysis for Kunming Chuan Jin Nuo Chemical
Kunming Chuan Jin Nuo Chemical's 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. Recognition must be given to the that Kunming Chuan Jin Nuo Chemical has grown EPS by 45% per year, over the last three years. Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.
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. The music to the ears of Kunming Chuan Jin Nuo Chemical shareholders is that EBIT margins have grown from 3.6% to 18% in the last 12 months and revenues are on an upwards trend as well. Ticking those two boxes is a good sign of growth, in our book.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.SZSE:300505 Earnings and Revenue History August 7th 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 Kunming Chuan Jin Nuo Chemical's balance sheet strength, before getting too excited.
Are Kunming Chuan Jin Nuo Chemical Insiders Aligned With All Shareholders?
Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price. So we're pleased to report that Kunming Chuan Jin Nuo Chemical insiders own a meaningful share of the business. In fact, they own 41% of the shares, making insiders a very influential shareholder group. This should be a welcoming sign for investors because it suggests that the people making the decisions are also impacted by their choices. CN¥2.7b This is an incredible endorsement from them.
It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. Our analysis has discovered that the median total compensation for the CEOs of companies like Kunming Chuan Jin Nuo Chemical with market caps between CN¥2.7b and CN¥11b is about CN¥960k.
Kunming Chuan Jin Nuo Chemical's CEO took home a total compensation package worth CN¥676k in the year leading up to December 2021. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Does Kunming Chuan Jin Nuo Chemical Deserve A Spot On Your Watchlist?
Kunming Chuan Jin Nuo Chemical's earnings per share have been soaring, with growth rates sky high. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The sharp increase in earnings could signal good business momentum. Kunming Chuan Jin Nuo Chemical certainly ticks a few boxes, so we think it's probably well worth further consideration. Don't forget that there may still be risks. For instance, we've identified 3 warning signs for Kunming Chuan Jin Nuo Chemical (1 is potentially serious) you should be aware of.
Although Kunming Chuan Jin Nuo Chemical 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.