Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
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 Stella International Holdings (HKG:1836). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
Stella International Holdings' Improving Profits
In the last three years Stella International Holdings' 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. Stella International Holdings boosted its trailing twelve month EPS from US$0.15 to US$0.18, in the last year. This amounts to a 19% gain; a figure that shareholders will be pleased to see.
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. We note that while EBIT margins have improved from 9.0% to 12%, the company has actually reported a fall in revenue by 8.5%. While not disastrous, these figures could be better.
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 we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Stella International Holdings?
Are Stella International Holdings 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. So it is good to see that Stella International Holdings insiders have a significant amount of capital invested in the stock. We note that their impressive stake in the company is worth US$1.1b. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.
Should You Add Stella International Holdings To Your Watchlist?
As previously touched on, Stella International Holdings is a growing business, which is encouraging. To add an extra spark to the fire, significant insider ownership in the company is another highlight. The combination definitely favoured by investors so consider keeping the company on a watchlist. Before you take the next step you should know about the 2 warning signs for Stella International Holdings that we have uncovered.
Although Stella International Holdings certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with insider buying, then check out this handpicked selection of Hong Kong companies that not only boast of strong growth but have also seen recent insider buying..
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.