Does Zhejiang Asia-Pacific Mechanical & ElectronicLtd (SZSE:002284) Deserve A Spot On Your Watchlist?

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.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Zhejiang Asia-Pacific Mechanical & ElectronicLtd (SZSE:002284). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Zhejiang Asia-Pacific Mechanical & ElectronicLtd with the means to add long-term value to shareholders.

View our latest analysis for Zhejiang Asia-Pacific Mechanical & ElectronicLtd

Zhejiang Asia-Pacific Mechanical & ElectronicLtd's Earnings Per Share Are 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. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Zhejiang Asia-Pacific Mechanical & ElectronicLtd has managed to grow EPS by 17% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

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. Our analysis has highlighted that Zhejiang Asia-Pacific Mechanical & ElectronicLtd's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. Zhejiang Asia-Pacific Mechanical & ElectronicLtd shareholders can take confidence from the fact that EBIT margins are up from 1.7% to 3.7%, and revenue is growing. 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.

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 Asia-Pacific Mechanical & ElectronicLtd's balance sheet strength, before getting too excited.

Are Zhejiang Asia-Pacific Mechanical & ElectronicLtd 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 Asia-Pacific Mechanical & ElectronicLtd followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. With a whopping CN¥448m worth of shares as a group, insiders have plenty riding on the company's success. That's certainly enough to let shareholders know that management will be very focussed on long term growth.

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. 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 Zhejiang Asia-Pacific Mechanical & ElectronicLtd, with market caps between CN¥2.8b and CN¥11b, is around CN¥1.0m.

The Zhejiang Asia-Pacific Mechanical & ElectronicLtd CEO received CN¥862k in compensation for the year ending December 2023. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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. It can also be a sign of good governance, more generally.

Does Zhejiang Asia-Pacific Mechanical & ElectronicLtd Deserve A Spot On Your Watchlist?

For growth investors, Zhejiang Asia-Pacific Mechanical & ElectronicLtd's raw rate of earnings growth is a beacon in the night. If you still have your doubts, remember too that company insiders have a considerable investment aligning themselves with the shareholders and CEO pay is quite modest compared to similarly sized companiess. This may only be a fast rundown, but the key takeaway is that Zhejiang Asia-Pacific Mechanical & ElectronicLtd is worth keeping an eye on. Even so, be aware that Zhejiang Asia-Pacific Mechanical & ElectronicLtd is showing 1 warning sign in our investment analysis , you should know about...

Although Zhejiang Asia-Pacific Mechanical & ElectronicLtd 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.