With EPS Growth And More, GEM (SZSE:002340) Makes An Interesting Case

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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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 GEM (SZSE:002340). 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 GEM

How Quickly Is GEM Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. Over the last three years, GEM has grown EPS by 17% per year. That growth rate is fairly good, assuming the company can keep it up.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. On the revenue front, GEM has done well over the past year, growing revenue by 23% to CN¥35b but EBIT margin figures were less stellar, seeing a decline over the last 12 months. If EBIT margins are able to stay balanced and this revenue growth continues, then we should see brighter days ahead.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of GEM's forecast profits?

Are GEM Insiders Aligned With All Shareholders?

Since GEM has a market capitalisation of CN¥36b, we wouldn't expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. As a matter of fact, their holding is valued at CN¥216m. This considerable investment should help drive long-term value in the business. While their ownership only accounts for 0.6%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.

Is GEM Worth Keeping An Eye On?

As previously touched on, GEM is a growing business, which is encouraging. For those who are looking for a little more than this, the high level of insider ownership enhances our enthusiasm for this growth. That combination is very appealing. So yes, we do think the stock is worth keeping an eye on. We don't want to rain on the parade too much, but we did also find 3 warning signs for GEM (1 is potentially serious!) that you need to be mindful of.

Although GEM 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.