Should You Be Adding Henan Senyuan Electric (SZSE:002358) 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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

In contrast to all that, many investors prefer to focus on companies like Henan Senyuan Electric (SZSE:002358), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Henan Senyuan Electric with the means to add long-term value to shareholders.

See our latest analysis for Henan Senyuan Electric

How Fast Is Henan Senyuan Electric Growing Its Earnings Per Share?

Over the last three years, Henan Senyuan Electric has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. As a result, we'll zoom in on growth over the last year, instead. Impressively, Henan Senyuan Electric's EPS catapulted from CN¥0.07 to CN¥0.13, over the last year. It's a rarity to see 80% year-on-year growth like that.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. The good news is that Henan Senyuan Electric is growing revenues, and EBIT margins improved by 2.2 percentage points to 9.4%, over the last year. 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. Click on the chart to see the exact numbers.

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 Henan Senyuan Electric's balance sheet strength, before getting too excited.

Are Henan Senyuan Electric 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. Henan Senyuan Electric followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. To be specific, they have CN¥263m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 4.4% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Does Henan Senyuan Electric Deserve A Spot On Your Watchlist?

Henan Senyuan Electric's earnings per share have been soaring, with growth rates sky high. This level of EPS growth does wonders for attracting investment, and the large insider investment in the company is just the cherry on top. 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 Henan Senyuan Electric for a spot on your watchlist. Even so, be aware that Henan Senyuan Electric is showing 2 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

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.