Here's Why We Think LinhaiLtd (SHSE:600099) Might Deserve Your Attention Today

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. 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 LinhaiLtd (SHSE:600099). 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.

Check out our latest analysis for LinhaiLtd

LinhaiLtd's Improving Profits

Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So EPS growth can certainly encourage an investor to take note of a stock. LinhaiLtd has grown its trailing twelve month EPS from CN¥0.059 to CN¥0.064, in the last year. That amounts to a small improvement of 8.4%.

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. While we note LinhaiLtd achieved similar EBIT margins to last year, revenue grew by a solid 28% to CN¥929m. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

LinhaiLtd isn't a huge company, given its market capitalisation of CN¥2.0b. That makes it extra important to check on its balance sheet strength.

Are LinhaiLtd Insiders Aligned With All Shareholders?

As a general rule, it's worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. For companies with market capitalisations between CN¥730m and CN¥2.9b, like LinhaiLtd, the median CEO pay is around CN¥754k.

The LinhaiLtd CEO received CN¥527k in compensation for the year ending December 2023. That comes in below the average for similar sized companies and seems pretty reasonable. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.

Does LinhaiLtd Deserve A Spot On Your Watchlist?

One positive for LinhaiLtd is that it is growing EPS. That's nice to see. Not only that, but the CEO is paid quite reasonably, which should prompt investors to feel more trusting of the board of directors. All things considered, LinhaiLtd is definitely worth taking a deeper dive into. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with LinhaiLtd , and understanding this should be part of your investment process.

Although LinhaiLtd certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of Chinese companies that not only boast of strong growth but have strong insider backing.

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.