If EPS Growth Is Important To You, Qingdao KutesmartLtd (SZSE:300840) Presents An Opportunity

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. 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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like Qingdao KutesmartLtd (SZSE:300840), 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 Qingdao KutesmartLtd with the means to add long-term value to shareholders.

View our latest analysis for Qingdao KutesmartLtd

Qingdao KutesmartLtd's Improving Profits

Qingdao KutesmartLtd has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. So it would be better to isolate the growth rate over the last year for our analysis. It's good to see that Qingdao KutesmartLtd's EPS has grown from CN¥0.46 to CN¥0.53 over twelve months. There's little doubt shareholders would be happy with that 14% gain.

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. It's noted that, last year, Qingdao KutesmartLtd's revenue from operations was lower than its revenue, so that could distort our analysis of its margins. Qingdao KutesmartLtd maintained stable EBIT margins over the last year, all while growing revenue 7.8% to CN¥734m. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed 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 Qingdao KutesmartLtd's balance sheet strength, before getting too excited.

Are Qingdao KutesmartLtd 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. So it is good to see that Qingdao KutesmartLtd insiders have a significant amount of capital invested in the stock. Notably, they have an enviable stake in the company, worth CN¥1.0b. This totals to 35% of shares in the company. Enough to lead management's decision making process down a path that brings the most benefit to shareholders. So there is opportunity here to invest in a company whose management have tangible incentives to deliver.

Should You Add Qingdao KutesmartLtd To Your Watchlist?

As previously touched on, Qingdao KutesmartLtd is a growing business, which is encouraging. For those who are looking for a little more than this, the high level of insider ownership enhances our enthusiasm for this growth. These two factors are a huge highlight for the company which should be a strong contender your watchlists. You still need to take note of risks, for example - Qingdao KutesmartLtd has 1 warning sign we think 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.