With EPS Growth And More, Yunnan Lincang Xinyuan Germanium IndustryLTD (SZSE:002428) Makes An Interesting Case

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

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 Yunnan Lincang Xinyuan Germanium IndustryLTD (SZSE:002428). 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.

How Fast Is Yunnan Lincang Xinyuan Germanium IndustryLTD Growing?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That makes EPS growth an attractive quality for any company. Recognition must be given to the that Yunnan Lincang Xinyuan Germanium IndustryLTD has grown EPS by 60% 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. Yunnan Lincang Xinyuan Germanium IndustryLTD shareholders can take confidence from the fact that EBIT margins are up from -2.8% to 13%, and revenue is growing. That's great to see, on both counts.

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.

View our latest analysis for Yunnan Lincang Xinyuan Germanium IndustryLTD

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 Yunnan Lincang Xinyuan Germanium IndustryLTD's balance sheet strength, before getting too excited.

Are Yunnan Lincang Xinyuan Germanium IndustryLTD 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. So it is good to see that Yunnan Lincang Xinyuan Germanium IndustryLTD insiders have a significant amount of capital invested in the stock. To be specific, they have CN¥117m worth of shares. This considerable investment should help drive long-term value in the business. Despite being just 0.9% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. A brief analysis of the CEO compensation suggests they are. Our analysis has discovered that the median total compensation for the CEOs of companies like Yunnan Lincang Xinyuan Germanium IndustryLTD with market caps between CN¥7.3b and CN¥23b is about CN¥1.2m.

Yunnan Lincang Xinyuan Germanium IndustryLTD's CEO took home a total compensation package worth CN¥595k in the year leading up to December 2023. That is actually below the median for CEO's of similarly sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.

Does Yunnan Lincang Xinyuan Germanium IndustryLTD Deserve A Spot On Your Watchlist?

Yunnan Lincang Xinyuan Germanium IndustryLTD'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 drastic earnings growth indicates the business is going from strength to strength. Hopefully a trend that continues well into the future. Yunnan Lincang Xinyuan Germanium IndustryLTD is certainly doing some things right and is well worth investigating. Another important measure of business quality not discussed here, is return on equity (ROE). Click on this link to see how Yunnan Lincang Xinyuan Germanium IndustryLTD shapes up to industry peers, when it comes to ROE.

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.