Do Hebei Huatong Wires and Cables Group's (SHSE:605196) Earnings Warrant Your Attention?

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone 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. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

In contrast to all that, many investors prefer to focus on companies like Hebei Huatong Wires and Cables Group (SHSE:605196), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

Check out our latest analysis for Hebei Huatong Wires and Cables Group

How Quickly Is Hebei Huatong Wires and Cables Group Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Impressively, Hebei Huatong Wires and Cables Group has grown EPS by 31% per year, compound, in the last three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

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. Not all of Hebei Huatong Wires and Cables Group's revenue this year is 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. While revenue is looking a bit flat, the good news is EBIT margins improved by 2.0 percentage points to 9.2%, in the last twelve months. That's something to smile about.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Hebei Huatong Wires and Cables Group Insiders Aligned With All Shareholders?

Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price. So we're pleased to report that Hebei Huatong Wires and Cables Group insiders own a meaningful share of the business. In fact, they own 38% of the shares, making insiders a very influential shareholder group. Shareholders and speculators should be reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. at the current share price. That means they have plenty of their own capital riding on the performance of the business!

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. Well, based on the CEO pay, you'd argue that they are indeed. For companies with market capitalisations between CN¥2.9b and CN¥12b, like Hebei Huatong Wires and Cables Group, the median CEO pay is around CN¥987k.

The CEO of Hebei Huatong Wires and Cables Group only received CN¥463k in total compensation for the year ending December 2022. First impressions seem to indicate a compensation policy that is favourable to shareholders. 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 Hebei Huatong Wires and Cables Group Worth Keeping An Eye On?

If you believe that share price follows earnings per share you should definitely be delving further into Hebei Huatong Wires and Cables Group's strong EPS growth. If you need more convincing beyond that EPS growth rate, don't forget about the reasonable remuneration and the high insider ownership. This may only be a fast rundown, but the key takeaway is that Hebei Huatong Wires and Cables Group is worth keeping an eye on. Of course, just because Hebei Huatong Wires and Cables Group is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Although Hebei Huatong Wires and Cables Group 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.

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