Here's Why We Think Changhong Meiling (SZSE:000521) Might Deserve Your Attention Today

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and 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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

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 Changhong Meiling (SZSE:000521). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Changhong Meiling with the means to add long-term value to shareholders.

See our latest analysis for Changhong Meiling

Changhong Meiling's Improving Profits

In the last three years Changhong Meiling's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. As a result, we'll zoom in on growth over the last year, instead. In impressive fashion, Changhong Meiling's EPS grew from CN¥0.35 to CN¥0.75, over the previous 12 months. It's a rarity to see 115% year-on-year growth like that.

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. While we note Changhong Meiling achieved similar EBIT margins to last year, revenue grew by a solid 19% to CN¥25b. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

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

Are Changhong Meiling 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. So it is good to see that Changhong Meiling insiders have a significant amount of capital invested in the stock. As a matter of fact, their holding is valued at CN¥141m. This considerable investment should help drive long-term value in the business. While their ownership only accounts for 1.8%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.

Does Changhong Meiling Deserve A Spot On Your Watchlist?

Changhong Meiling's earnings per share growth have been climbing higher at an appreciable rate. 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 Changhong Meiling for a spot on your watchlist. Of course, just because Changhong Meiling 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.

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.

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