For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Suzhou Hesheng Special Material (SZSE:002290). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Suzhou Hesheng Special Material with the means to add long-term value to shareholders.
How Fast Is Suzhou Hesheng Special Material Growing Its Earnings Per Share?
In the last three years Suzhou Hesheng Special Material'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. It's good to see that Suzhou Hesheng Special Material's EPS has grown from CN¥0.29 to CN¥0.32 over twelve months. There's little doubt shareholders would be happy with that 11% gain.
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. It was a year of stability for Suzhou Hesheng Special Material as both revenue and EBIT margins remained have been flat over the past year. That's not bad, but it doesn't point to ongoing future growth, either.
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
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 Suzhou Hesheng Special Material's balance sheet strength, before getting too excited.
Are Suzhou Hesheng Special Material Insiders Aligned With All Shareholders?
It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. Shareholders will be pleased by the fact that insiders own Suzhou Hesheng Special Material shares worth a considerable sum. We note that their impressive stake in the company is worth CN¥1.0b. That equates to 30% of the company, making insiders powerful and aligned with other shareholders. Very encouraging.
It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. Our quick analysis into CEO remuneration would seem to indicate they are. The median total compensation for CEOs of companies similar in size to Suzhou Hesheng Special Material, with market caps between CN¥1.4b and CN¥5.8b, is around CN¥822k.
The Suzhou Hesheng Special Material CEO received CN¥442k in compensation for the year ending December 2022. That comes in below the average for similar sized companies and seems pretty reasonable. 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.
Is Suzhou Hesheng Special Material Worth Keeping An Eye On?
One important encouraging feature of Suzhou Hesheng Special Material is that it is growing profits. The fact that EPS is growing is a genuine positive for Suzhou Hesheng Special Material, but the pleasant picture gets better than that. Boasting both modest CEO pay and considerable insider ownership, you'd argue this one is worthy of the watchlist, at least. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Suzhou Hesheng Special Material , and understanding it should be part of your investment process.
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.