Here's Why We Think Shanghai Daimay Automotive Interior (SHSE:603730) Is Well Worth Watching

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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Shanghai Daimay Automotive Interior (SHSE:603730). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Shanghai Daimay Automotive Interior with the means to add long-term value to shareholders.

View our latest analysis for Shanghai Daimay Automotive Interior

Shanghai Daimay Automotive Interior's Earnings Per Share Are Growing

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. We can see that in the last three years Shanghai Daimay Automotive Interior grew its EPS by 4.5% per year. This may not be setting the world alight, but it does show that EPS is on the upwards trend.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Not all of Shanghai Daimay Automotive Interior's revenue last year was revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. The good news is that Shanghai Daimay Automotive Interior is growing revenues, and EBIT margins improved by 2.1 percentage points to 11%, over the last year. Ticking those two boxes is a good sign of growth, in our book.

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

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

Are Shanghai Daimay Automotive Interior 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. Shanghai Daimay Automotive Interior followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. Notably, they have an enviable stake in the company, worth CN¥3.5b. That equates to 24% of the company, making insiders powerful and aligned with other shareholders. Looking very optimistic for investors.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, you'd argue that they are indeed. The median total compensation for CEOs of companies similar in size to Shanghai Daimay Automotive Interior, with market caps between CN¥7.2b and CN¥23b, is around CN¥1.3m.

Shanghai Daimay Automotive Interior's CEO took home a total compensation package worth CN¥1.1m in the year leading up to December 2022. That is actually below the median for CEO's of similarly sized companies. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Does Shanghai Daimay Automotive Interior Deserve A Spot On Your Watchlist?

One important encouraging feature of Shanghai Daimay Automotive Interior is that it is growing profits. The fact that EPS is growing is a genuine positive for Shanghai Daimay Automotive Interior, but the pleasant picture gets better than that. With company insiders aligning themselves considerably with the company's success and modest CEO compensation, there's no arguments that this is a stock worth looking into. You should always think about risks though. Case in point, we've spotted 1 warning sign for Shanghai Daimay Automotive Interior 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.