With EPS Growth And More, Guangxi Huaxi Nonferrous MetalLtd (SHSE:600301) Makes An Interesting Case

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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.

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 Guangxi Huaxi Nonferrous MetalLtd (SHSE:600301). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

Guangxi Huaxi Nonferrous MetalLtd's Improving Profits

Over the last three years, Guangxi Huaxi Nonferrous MetalLtd has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. So it would be better to isolate the growth rate over the last year for our analysis. Impressively, Guangxi Huaxi Nonferrous MetalLtd's EPS catapulted from CN¥0.40 to CN¥0.92, over the last year. It's a rarity to see 134% year-on-year growth like that. The best case scenario? That the business has hit a true inflection point.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Our analysis has highlighted that Guangxi Huaxi Nonferrous MetalLtd's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. The good news is that Guangxi Huaxi Nonferrous MetalLtd is growing revenues, and EBIT margins improved by 2.6 percentage points to 29%, over the last year. That's great to see, on both counts.

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.

See our latest analysis for Guangxi Huaxi Nonferrous MetalLtd

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

Are Guangxi Huaxi Nonferrous MetalLtd 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. So it is good to see that Guangxi Huaxi Nonferrous MetalLtd insiders have a significant amount of capital invested in the stock. As a matter of fact, their holding is valued at CN¥94m. That's a lot of money, and no small incentive to work hard. While their ownership only accounts for 0.6%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. The median total compensation for CEOs of companies similar in size to Guangxi Huaxi Nonferrous MetalLtd, with market caps between CN¥7.3b and CN¥23b, is around CN¥1.2m.

The Guangxi Huaxi Nonferrous MetalLtd CEO received total compensation of only CN¥409k in the year to December 2023. This could be considered a token amount, and indicates that the company does not need to use payment to motivate the CEO - that is often a good sign. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.

Should You Add Guangxi Huaxi Nonferrous MetalLtd To Your Watchlist?

Guangxi Huaxi Nonferrous MetalLtd'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 strong EPS improvement suggests the businesses is humming along. Big growth can make big winners, so the writing on the wall tells us that Guangxi Huaxi Nonferrous MetalLtd is worth considering carefully. Now, you could try to make up your mind on Guangxi Huaxi Nonferrous MetalLtd 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 Guangxi Huaxi Nonferrous MetalLtd 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.