Does Jiangxi Guotai GroupLtd (SHSE:603977) Deserve A Spot On Your Watchlist?

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.' 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.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Jiangxi Guotai GroupLtd (SHSE:603977). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Jiangxi Guotai GroupLtd with the means to add long-term value to shareholders.

View our latest analysis for Jiangxi Guotai GroupLtd

Jiangxi Guotai GroupLtd'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. That means EPS growth is considered a real positive by most successful long-term investors. Jiangxi Guotai GroupLtd managed to grow EPS by 9.4% per year, over three years. That growth rate is fairly good, assuming the company can keep it up.

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. Not all of Jiangxi Guotai GroupLtd's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. While we note Jiangxi Guotai GroupLtd achieved similar EBIT margins to last year, revenue grew by a solid 16% to CN¥2.6b. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Jiangxi Guotai GroupLtd's future EPS 100% free.

Are Jiangxi Guotai GroupLtd 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 Jiangxi Guotai GroupLtd shares worth a considerable sum. Indeed, they hold CN¥110m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 1.8% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Does Jiangxi Guotai GroupLtd Deserve A Spot On Your Watchlist?

One positive for Jiangxi Guotai GroupLtd is that it is growing EPS. That's nice to see. If that's not enough on its own, there is also the rather notable levels of insider ownership. These two factors are a huge highlight for the company which should be a strong contender your watchlists. We don't want to rain on the parade too much, but we did also find 1 warning sign for Jiangxi Guotai GroupLtd that you need to be mindful 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.