Here's Why We Think Zhejiang Hengtong HoldingLtd (SHSE:600226) Might Deserve Your Attention 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. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

In contrast to all that, many investors prefer to focus on companies like Zhejiang Hengtong HoldingLtd (SHSE:600226), which has not only revenues, but also profits. While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

See our latest analysis for Zhejiang Hengtong HoldingLtd

How Fast Is Zhejiang Hengtong HoldingLtd Growing Its Earnings Per Share?

Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So EPS growth can certainly encourage an investor to take note of a stock. Impressively, Zhejiang Hengtong HoldingLtd's EPS catapulted from CN¥0.036 to CN¥0.064, over the last year. It's a rarity to see 81% year-on-year growth like that. That could be a sign that the business has reached a true inflection point.

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. The good news is that Zhejiang Hengtong HoldingLtd is growing revenues, and EBIT margins improved by 3.1 percentage points to 3.2%, over the last year. Ticking those two boxes is a good sign of growth, in our book.

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

Are Zhejiang Hengtong HoldingLtd Insiders Aligned With All Shareholders?

It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. Shareholders will be pleased by the fact that insiders own Zhejiang Hengtong HoldingLtd shares worth a considerable sum. To be specific, they have CN¥322m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. While their ownership only accounts for 3.8%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. Our quick analysis into CEO remuneration would seem to indicate they are. Our analysis has discovered that the median total compensation for the CEOs of companies like Zhejiang Hengtong HoldingLtd with market caps between CN¥2.9b and CN¥12b is about CN¥974k.

Zhejiang Hengtong HoldingLtd's CEO took home a total compensation package worth CN¥697k in the year leading up 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.

Does Zhejiang Hengtong HoldingLtd Deserve A Spot On Your Watchlist?

Zhejiang Hengtong HoldingLtd's earnings have taken off in quite an impressive fashion. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The drastic earnings growth indicates the business is going from strength to strength. Hopefully a trend that continues well into the future. Zhejiang Hengtong HoldingLtd is certainly doing some things right and is well worth investigating. Now, you could try to make up your mind on Zhejiang Hengtong HoldingLtd by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.

Although Zhejiang Hengtong HoldingLtd certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of Chinese companies that not only boast of strong growth but have strong insider backing.

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.