Do Xiangtan Electrochemical ScientificLtd's (SZSE:002125) Earnings Warrant Your Attention?

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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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 Xiangtan Electrochemical ScientificLtd (SZSE:002125). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

View our latest analysis for Xiangtan Electrochemical ScientificLtd

How Fast Is Xiangtan Electrochemical ScientificLtd Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. To the delight of shareholders, Xiangtan Electrochemical ScientificLtd has achieved impressive annual EPS growth of 49%, compound, over the last three years. Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.

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. It's noted that, last year, Xiangtan Electrochemical ScientificLtd's revenue from operations was lower than its revenue, so that could distort our analysis of its margins. Unfortunately, Xiangtan Electrochemical ScientificLtd's revenue dropped 17% last year, but the silver lining is that EBIT margins improved from 6.0% to 20%. That falls short of ideal.

The chart below shows how the company's bottom and top lines have progressed 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 Xiangtan Electrochemical ScientificLtd Insiders Aligned With All Shareholders?

It's a good habit to check into a company's remuneration policies to ensure that the CEO and management team aren't putting their own interests before that of the shareholder with excessive salary packages. The median total compensation for CEOs of companies similar in size to Xiangtan Electrochemical ScientificLtd, with market caps between CN¥2.9b and CN¥12b, is around CN¥975k.

Xiangtan Electrochemical ScientificLtd's CEO took home a total compensation package worth CN¥651k in the year leading up to December 2023. That is actually below the median for CEO's of similarly sized companies. 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 a culture of integrity, in a broader sense.

Should You Add Xiangtan Electrochemical ScientificLtd To Your Watchlist?

Xiangtan Electrochemical ScientificLtd's earnings per share growth have been climbing higher at an appreciable rate. This appreciable increase in earnings could be a sign of an upward trajectory for the company. Meanwhile, the very reasonable CEO pay is a great reassurance, since it points to an absence of wasteful spending habits. So Xiangtan Electrochemical ScientificLtd looks like it could be a good quality growth stock, at first glance. That's worth watching. You still need to take note of risks, for example - Xiangtan Electrochemical ScientificLtd has 1 warning sign we think you should be aware of.

Although Xiangtan Electrochemical ScientificLtd 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.