We Ran A Stock Scan For Earnings Growth And Zhejiang Chang'an Renheng Technology (HKG:8139) Passed With Ease

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. 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 can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Zhejiang Chang'an Renheng Technology (HKG:8139). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

View our latest analysis for Zhejiang Chang'an Renheng Technology

Zhejiang Chang'an Renheng Technology's Earnings Per Share Are Growing

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Impressively, Zhejiang Chang'an Renheng Technology has grown EPS by 25% per year, compound, in the last three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

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. Zhejiang Chang'an Renheng Technology maintained stable EBIT margins over the last year, all while growing revenue 7.6% to CN¥162m. That's a real positive.

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

Since Zhejiang Chang'an Renheng Technology is no giant, with a market capitalisation of HK$51m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Zhejiang Chang'an Renheng Technology Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So as you can imagine, the fact that Zhejiang Chang'an Renheng Technology insiders own a significant number of shares certainly is appealing. To be exact, company insiders hold 61% of the company, so their decisions have a significant impact on their investments. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. Valued at only HK$51m Zhejiang Chang'an Renheng Technology is really small for a listed company. That means insiders only have CN¥31m worth of shares, despite the large proportional holding. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Our quick analysis into CEO remuneration would seem to indicate they are. The median total compensation for CEOs of companies similar in size to Zhejiang Chang'an Renheng Technology, with market caps under CN¥1.4b is around CN¥1.7m.

The CEO of Zhejiang Chang'an Renheng Technology was paid just CN¥363k in total compensation for the year ending December 2023. You could consider this pay as somewhat symbolic, which suggests the CEO does not need a lot of compensation to stay motivated. 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. It can also be a sign of good governance, more generally.

Should You Add Zhejiang Chang'an Renheng Technology To Your Watchlist?

For growth investors, Zhejiang Chang'an Renheng Technology's raw rate of earnings growth is a beacon in the night. If you still have your doubts, remember too that company insiders have a considerable investment aligning themselves with the shareholders and CEO pay is quite modest compared to similarly sized companiess. Everyone has their own preferences when it comes to investing but it definitely makes Zhejiang Chang'an Renheng Technology look rather interesting indeed. What about risks? Every company has them, and we've spotted 3 warning signs for Zhejiang Chang'an Renheng Technology (of which 2 make us uncomfortable!) 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 HK 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.