With EPS Growth And More, Changzhou Tenglong AutoPartsCo.Ltd (SHSE:603158) Makes An Interesting Case

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.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

In contrast to all that, many investors prefer to focus on companies like Changzhou Tenglong AutoPartsCo.Ltd (SHSE:603158), which has not only revenues, but also profits. While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

Check out our latest analysis for Changzhou Tenglong AutoPartsCo.Ltd

Changzhou Tenglong AutoPartsCo.Ltd's Improving Profits

Even when EPS earnings per share (EPS) growth is unexceptional, company value can be created if this rate is sustained each year. So it's no surprise that some investors are more inclined to invest in profitable businesses. Changzhou Tenglong AutoPartsCo.Ltd's EPS skyrocketed from CN¥0.27 to CN¥0.44, in just one year; a result that's bound to bring a smile to shareholders. That's a commendable gain of 60%.

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 Changzhou Tenglong AutoPartsCo.Ltd achieved similar EBIT margins to last year, revenue grew by a solid 27% to CN¥3.5b. That's progress.

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

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Changzhou Tenglong AutoPartsCo.Ltd Insiders Aligned With All Shareholders?

It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. Shareholders will be pleased by the fact that insiders own Changzhou Tenglong AutoPartsCo.Ltd shares worth a considerable sum. Holding CN¥623m worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. That holding amounts to 17% of the stock on issue, thus making insiders influential owners of the business and aligned with the interests of 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. For companies with market capitalisations between CN¥1.4b and CN¥5.8b, like Changzhou Tenglong AutoPartsCo.Ltd, the median CEO pay is around CN¥934k.

The Changzhou Tenglong AutoPartsCo.Ltd CEO received CN¥700k in compensation for the year ending December 2023. That comes in below the average for similar sized companies and seems pretty reasonable. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Does Changzhou Tenglong AutoPartsCo.Ltd Deserve A Spot On Your Watchlist?

You can't deny that Changzhou Tenglong AutoPartsCo.Ltd has grown its earnings per share at a very impressive rate. That's attractive. If that's not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. This may only be a fast rundown, but the key takeaway is that Changzhou Tenglong AutoPartsCo.Ltd is worth keeping an eye on. However, before you get too excited we've discovered 1 warning sign for Changzhou Tenglong AutoPartsCo.Ltd that you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com