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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
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 New Trend International Logis-TechLtd (SZSE:300532). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide New Trend International Logis-TechLtd with the means to add long-term value to shareholders.
See our latest analysis for New Trend International Logis-TechLtd
New Trend International Logis-TechLtd's Improving Profits
In the last three years New Trend International Logis-TechLtd'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. So it would be better to isolate the growth rate over the last year for our analysis. Impressively, New Trend International Logis-TechLtd's EPS catapulted from CN¥0.73 to CN¥1.28, over the last year. It's a rarity to see 75% year-on-year growth like that. The best case scenario? That the business has hit a true inflection point.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. The music to the ears of New Trend International Logis-TechLtd shareholders is that EBIT margins have grown from 11% to 13% in the last 12 months and revenues are on an upwards trend as well. That's great to see, on both counts.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
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 New Trend International Logis-TechLtd's balance sheet strength, before getting too excited.
Are New Trend International Logis-TechLtd 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 New Trend International Logis-TechLtd insiders own a meaningful share of the business. In fact, they own 42% 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. At the current share price, that insider holding is worth a staggering CN¥2.1b. That level of investment from insiders is nothing to sneeze at.
Is New Trend International Logis-TechLtd Worth Keeping An Eye On?
New Trend International Logis-TechLtd's earnings per share have been soaring, with growth rates sky high. That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. So based on this quick analysis, we do think it's worth considering New Trend International Logis-TechLtd for a spot on your watchlist. What about risks? Every company has them, and we've spotted 1 warning sign for New Trend International Logis-TechLtd 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.