Does L&K Engineering (Suzhou)Ltd (SHSE:603929) Deserve A Spot On Your Watchlist?

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

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 L&K Engineering (Suzhou)Ltd (SHSE:603929). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

See our latest analysis for L&K Engineering (Suzhou)Ltd

L&K Engineering (Suzhou)Ltd's Improving Profits

Strong earnings per share (EPS) results are an indicator of a company achieving solid profits, which investors look upon favourably and so the share price tends to reflect great EPS performance. So for many budding investors, improving EPS is considered a good sign. It is awe-striking that L&K Engineering (Suzhou)Ltd's EPS went from CN¥0.36 to CN¥1.46 in just one year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future. This could point to the business hitting a point of inflection.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. L&K Engineering (Suzhou)Ltd shareholders can take confidence from the fact that EBIT margins are up from 3.1% to 8.7%, and revenue is growing. That's great to see, on both counts.

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 L&K Engineering (Suzhou)Ltd's balance sheet strength, before getting too excited.

Are L&K Engineering (Suzhou)Ltd 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. Shareholders will be pleased by the fact that insiders own L&K Engineering (Suzhou)Ltd shares worth a considerable sum. Holding CN¥376m worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. At 9.1% of the company, the co-investment by insiders fosters confidence that management will make long-term focussed decisions.

Is L&K Engineering (Suzhou)Ltd Worth Keeping An Eye On?

L&K Engineering (Suzhou)Ltd's earnings have taken off in quite an impressive fashion. That sort of growth is nothing short of eye-catching, and the large investment held by insiders should certainly brighten the view of the company. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. So at the surface level, L&K Engineering (Suzhou)Ltd is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. It is worth noting though that we have found 1 warning sign for L&K Engineering (Suzhou)Ltd that you need to take into consideration.

Although L&K Engineering (Suzhou)Ltd 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.

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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.