Here's Why We Think Shenzhen Zhaowei Machinery & Electronics (SZSE:003021) Might Deserve Your Attention Today

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

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Shenzhen Zhaowei Machinery & Electronics (SZSE:003021). 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 Shenzhen Zhaowei Machinery & Electronics

Shenzhen Zhaowei Machinery & Electronics' Improving Profits

Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So it's no surprise that some investors are more inclined to invest in profitable businesses. Shenzhen Zhaowei Machinery & Electronics boosted its trailing twelve month EPS from CN¥0.74 to CN¥0.88, in the last year. There's little doubt shareholders would be happy with that 19% gain.

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. EBIT margins for Shenzhen Zhaowei Machinery & Electronics remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 22% to CN¥1.4b. That's encouraging news for the company!

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.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Shenzhen Zhaowei Machinery & Electronics.

Are Shenzhen Zhaowei Machinery & Electronics Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. Shareholders will be pleased by the fact that insiders own Shenzhen Zhaowei Machinery & Electronics shares worth a considerable sum. We note that their impressive stake in the company is worth CN¥4.4b. This totals to 18% of shares in the company. Enough to lead management's decision making process down a path that brings the most benefit to shareholders. Looking very optimistic for investors.

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 Shenzhen Zhaowei Machinery & Electronics, with market caps between CN¥14b and CN¥46b, is around CN¥1.5m.

Shenzhen Zhaowei Machinery & Electronics' CEO took home a total compensation package worth CN¥1.2m in the year leading up to December 2023. That is actually below the median for CEO's of similarly sized companies. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is Shenzhen Zhaowei Machinery & Electronics Worth Keeping An Eye On?

As previously touched on, Shenzhen Zhaowei Machinery & Electronics is a growing business, which is encouraging. Earnings growth might be the main attraction for Shenzhen Zhaowei Machinery & Electronics, but the fun does not stop there. With company insiders aligning themselves considerably with the company's success and modest CEO compensation, there's no arguments that this is a stock worth looking into. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Shenzhen Zhaowei Machinery & Electronics that you should be aware of.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of Chinese companies which have demonstrated growth backed by significant insider holdings.

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.