Is Now The Time To Put China Automotive Engineering Research Institute (SHSE:601965) On Your Watchlist?

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. 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.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in China Automotive Engineering Research Institute (SHSE:601965). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide China Automotive Engineering Research Institute with the means to add long-term value to shareholders.

See our latest analysis for China Automotive Engineering Research Institute

How Fast Is China Automotive Engineering Research Institute Growing?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Over the last three years, China Automotive Engineering Research Institute has grown EPS by 11% per year. That's a good rate of growth, if it can be sustained.

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 China Automotive Engineering Research Institute achieved similar EBIT margins to last year, revenue grew by a solid 20% to CN¥4.3b. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

Fortunately, we've got access to analyst forecasts of China Automotive Engineering Research Institute's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are China Automotive Engineering Research Institute Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that China Automotive Engineering Research Institute insiders have a significant amount of capital invested in the stock. As a matter of fact, their holding is valued at CN¥196m. That's a lot of money, and no small incentive to work hard. While their ownership only accounts for 1.1%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.

Should You Add China Automotive Engineering Research Institute To Your Watchlist?

One important encouraging feature of China Automotive Engineering Research Institute is that it is growing profits. If that's not enough on its own, there is also the rather notable levels of insider ownership. The combination definitely favoured by investors so consider keeping the company on a watchlist. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with China Automotive Engineering Research Institute , and understanding this 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.