Should You Be Adding Shenzhen Soling IndustrialLtd (SZSE:002766) To Your Watchlist Today?

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

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 Shenzhen Soling IndustrialLtd (SZSE:002766). 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 Shenzhen Soling IndustrialLtd

How Fast Is Shenzhen Soling IndustrialLtd Growing Its Earnings Per Share?

In the last three years Shenzhen Soling IndustrialLtd's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. As a result, we'll zoom in on growth over the last year, instead. In impressive fashion, Shenzhen Soling IndustrialLtd's EPS grew from CN¥0.03 to CN¥0.066, over the previous 12 months. It's not often a company can achieve year-on-year growth of 120%. The best case scenario? That the business has hit a true inflection point.

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. Our analysis has highlighted that Shenzhen Soling IndustrialLtd's revenue from operations did not account for all of their revenue last year, so our analysis of its margins might not accurately reflect the underlying business. Shenzhen Soling IndustrialLtd maintained stable EBIT margins over the last year, all while growing revenue 57% to CN¥1.6b. That's progress.

The chart below shows how the company's bottom and top lines have progressed 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 Shenzhen Soling IndustrialLtd's balance sheet strength, before getting too excited.

Are Shenzhen Soling IndustrialLtd 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. So it is good to see that Shenzhen Soling IndustrialLtd insiders have a significant amount of capital invested in the stock. Given insiders own a significant chunk of shares, currently valued at CN¥662m, they have plenty of motivation to push the business to succeed. At 12% of the company, the co-investment by insiders fosters confidence that management will make long-term focussed decisions.

Does Shenzhen Soling IndustrialLtd Deserve A Spot On Your Watchlist?

Shenzhen Soling IndustrialLtd's earnings per share have been soaring, with growth rates sky high. That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So based on this quick analysis, we do think it's worth considering Shenzhen Soling IndustrialLtd for a spot on your watchlist. One of Buffett's considerations when discussing businesses is if they are capital light or capital intensive. Generally, a company with a high return on equity is capital light, and can thus fund growth more easily. So you might want to check this graph comparing Shenzhen Soling IndustrialLtd's ROE with industry peers (and the market at large).

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.