If EPS Growth Is Important To You, Henan Zhongfu IndustrialLtd (SHSE:600595) Presents An Opportunity

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

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 Henan Zhongfu IndustrialLtd (SHSE:600595). 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.

View our latest analysis for Henan Zhongfu IndustrialLtd

Henan Zhongfu IndustrialLtd's Earnings Per Share Are Growing

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. To the delight of shareholders, Henan Zhongfu IndustrialLtd has achieved impressive annual EPS growth of 59%, compound, over the last three years. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.

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. The good news is that Henan Zhongfu IndustrialLtd is growing revenues, and EBIT margins improved by 3.4 percentage points to 8.4%, over the last year. Ticking those two boxes is a good sign of growth, in our book.

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.

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

Are Henan Zhongfu IndustrialLtd 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. Henan Zhongfu IndustrialLtd followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. To be specific, they have CN¥140m worth of shares. 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.

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. Well, based on the CEO pay, you'd argue that they are indeed. Our analysis has discovered that the median total compensation for the CEOs of companies like Henan Zhongfu IndustrialLtd with market caps between CN¥7.1b and CN¥23b is about CN¥1.2m.

Henan Zhongfu IndustrialLtd's CEO took home a total compensation package of CN¥590k in the year prior to December 2023. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. 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 a culture of integrity, in a broader sense.

Should You Add Henan Zhongfu IndustrialLtd To Your Watchlist?

Henan Zhongfu IndustrialLtd's earnings per share have been soaring, with growth rates sky high. An added bonus for those interested is that management hold a heap of stock and the CEO pay is quite reasonable, illustrating good cash management. The strong EPS improvement suggests the businesses is humming along. Henan Zhongfu IndustrialLtd certainly ticks a few boxes, so we think it's probably well worth further consideration. 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.

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.