Here's Why Henan Zhongfu IndustrialLtd (SHSE:600595) Has Caught The Eye Of Investors

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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.

In contrast to all that, many investors prefer to focus on companies like Henan Zhongfu IndustrialLtd (SHSE:600595), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

See our latest analysis for Henan Zhongfu IndustrialLtd

How Fast Is Henan Zhongfu IndustrialLtd Growing Its Earnings Per Share?

Over the last three years, Henan Zhongfu IndustrialLtd 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. Thus, it makes sense to focus on more recent growth rates, instead. Henan Zhongfu IndustrialLtd boosted its trailing twelve month EPS from CN¥0.21 to CN¥0.25, in the last year. This amounts to a 19% gain; a figure that shareholders will be pleased to see.

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. EBIT margins for Henan Zhongfu IndustrialLtd remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 19% to CN¥20b. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

Fortunately, we've got access to analyst forecasts of Henan Zhongfu IndustrialLtd's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Henan Zhongfu IndustrialLtd 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 Henan Zhongfu IndustrialLtd insiders have a significant amount of capital invested in the stock. Indeed, they hold CN¥154m worth of its stock. This considerable investment should help drive long-term value in the business. Despite being just 1.2% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. A brief analysis of the CEO compensation suggests they are. For companies with market capitalisations between CN¥7.2b and CN¥23b, like Henan Zhongfu IndustrialLtd, the median CEO pay is around CN¥1.2m.

The CEO of Henan Zhongfu IndustrialLtd only received CN¥572k in total compensation for the year ending December 2022. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of good governance, more generally.

Is Henan Zhongfu IndustrialLtd Worth Keeping An Eye On?

As previously touched on, Henan Zhongfu IndustrialLtd is a growing business, which is encouraging. The growth of EPS may be the eye-catching headline for Henan Zhongfu IndustrialLtd, 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. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Henan Zhongfu IndustrialLtd is trading on a high P/E or a low P/E, relative to its industry.

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.