Here's Why We Think Shenzhen Batian Ecotypic Engineering (SZSE:002170) Is Well Worth Watching

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. 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. 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 Shenzhen Batian Ecotypic Engineering (SZSE:002170). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Shenzhen Batian Ecotypic Engineering with the means to add long-term value to shareholders.

Check out our latest analysis for Shenzhen Batian Ecotypic Engineering

Shenzhen Batian Ecotypic Engineering's Earnings Per Share Are Growing

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Recognition must be given to the that Shenzhen Batian Ecotypic Engineering has grown EPS by 44% per year, over the last three years. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors.

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. Unfortunately, Shenzhen Batian Ecotypic Engineering's revenue dropped 3.2% last year, but the silver lining is that EBIT margins improved from 8.3% to 13%. That falls short of ideal.

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.

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Shenzhen Batian Ecotypic Engineering's balance sheet strength, before getting too excited.

Are Shenzhen Batian Ecotypic Engineering Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So as you can imagine, the fact that Shenzhen Batian Ecotypic Engineering insiders own a significant number of shares certainly is appealing. Owning 36% of the company, insiders have plenty riding on the performance of the the share price. This should be a welcoming sign for investors because it suggests that the people making the decisions are also impacted by their choices. This insider holding amounts to That level of investment from insiders is nothing to sneeze at.

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 Shenzhen Batian Ecotypic Engineering, with market caps between CN¥2.9b and CN¥12b, is around CN¥970k.

The Shenzhen Batian Ecotypic Engineering CEO received CN¥764k in compensation for the year ending December 2023. That comes in below the average for similar sized companies and seems pretty reasonable. 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.

Does Shenzhen Batian Ecotypic Engineering Deserve A Spot On Your Watchlist?

Shenzhen Batian Ecotypic Engineering's earnings per share growth have been climbing higher at an appreciable rate. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is 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 Shenzhen Batian Ecotypic Engineering is worth considering carefully. However, before you get too excited we've discovered 2 warning signs for Shenzhen Batian Ecotypic Engineering (1 is a bit unpleasant!) that you should be aware of.

Although Shenzhen Batian Ecotypic Engineering 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.