Here's Why ShenZhen QiangRui Precision Technology (SZSE:301128) Has Caught The Eye Of Investors

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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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 ShenZhen QiangRui Precision Technology (SZSE:301128), 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 ShenZhen QiangRui Precision Technology with the means to add long-term value to shareholders.

Check out our latest analysis for ShenZhen QiangRui Precision Technology

How Quickly Is ShenZhen QiangRui Precision Technology Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. We can see that in the last three years ShenZhen QiangRui Precision Technology grew its EPS by 9.5% per year. That's a pretty good rate, if the company can sustain it.

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. ShenZhen QiangRui Precision Technology shareholders can take confidence from the fact that EBIT margins are up from 5.7% to 9.8%, and revenue is growing. Ticking those two boxes is a good sign of growth, in our book.

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 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 QiangRui Precision Technology's balance sheet strength, before getting too excited.

Are ShenZhen QiangRui Precision Technology 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 QiangRui Precision Technology shares worth a considerable sum. Indeed, they have a considerable amount of wealth invested in it, currently valued at CN¥1.1b. That equates to 22% of the company, making insiders powerful and aligned with other shareholders. So there is opportunity here to invest in a company whose management have tangible incentives to deliver.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? 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 QiangRui Precision Technology, with market caps between CN¥2.9b and CN¥12b, is around CN¥966k.

ShenZhen QiangRui Precision Technology offered total compensation worth CN¥598k to its CEO in the year to December 2023. That is actually below the median for CEO's of similarly sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.

Is ShenZhen QiangRui Precision Technology Worth Keeping An Eye On?

One positive for ShenZhen QiangRui Precision Technology is that it is growing EPS. That's nice to see. The growth of EPS may be the eye-catching headline for ShenZhen QiangRui Precision Technology, but there's more to bring joy for shareholders. 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 2 warning signs for ShenZhen QiangRui Precision Technology (1 is potentially serious) 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.