Here's Why Zhejiang Wanfeng Auto Wheel (SZSE:002085) Has Caught The Eye Of Investors

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 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.

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 Zhejiang Wanfeng Auto Wheel (SZSE:002085). 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 Wanfeng Auto Wheel

How Quickly Is Zhejiang Wanfeng Auto Wheel Increasing Earnings Per Share?

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. Zhejiang Wanfeng Auto Wheel managed to grow EPS by 8.5% per year, over three years. That growth rate is fairly good, assuming the company can keep it up.

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. It's noted that Zhejiang Wanfeng Auto Wheel's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. Zhejiang Wanfeng Auto Wheel maintained stable EBIT margins over the last year, all while growing revenue 4.6% to CN¥16b. That's progress.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Zhejiang Wanfeng Auto Wheel's balance sheet strength, before getting too excited.

Are Zhejiang Wanfeng Auto Wheel Insiders Aligned With All Shareholders?

It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. Zhejiang Wanfeng Auto Wheel followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. Indeed, they have a considerable amount of wealth invested in it, currently valued at CN¥1.9b. Holders should find this level of insider commitment quite encouraging, since it would ensure that the leaders of the company would also experience their success, or failure, with the stock.

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. Our quick analysis into CEO remuneration would seem to indicate they are. For companies with market capitalisations between CN¥29b and CN¥87b, like Zhejiang Wanfeng Auto Wheel, the median CEO pay is around CN¥1.9m.

The Zhejiang Wanfeng Auto Wheel CEO received CN¥1.7m in compensation for the year ending December 2022. That is actually below the median for CEO's of similarly sized companies. 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.

Is Zhejiang Wanfeng Auto Wheel Worth Keeping An Eye On?

As previously touched on, Zhejiang Wanfeng Auto Wheel is a growing business, which is encouraging. Earnings growth might be the main attraction for Zhejiang Wanfeng Auto Wheel, but the fun does not stop there. Boasting both modest CEO pay and considerable insider ownership, you'd argue this one is worthy of the watchlist, at least. It's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Zhejiang Wanfeng Auto Wheel (at least 2 which make us uncomfortable) , and understanding these should be part of your investment process.

Although Zhejiang Wanfeng Auto Wheel certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with insider buying, then check out this handpicked selection of Chinese companies that not only boast of strong growth but have also seen recent insider buying..

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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

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.