Should You Be Adding Shenzhen RongDa Photosensitive Science & Technology (SZSE:300576) To Your Watchlist Today?

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 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.

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 Shenzhen RongDa Photosensitive Science & Technology (SZSE:300576). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Shenzhen RongDa Photosensitive Science & Technology with the means to add long-term value to shareholders.

View our latest analysis for Shenzhen RongDa Photosensitive Science & Technology

How Quickly Is Shenzhen RongDa Photosensitive Science & Technology Increasing Earnings Per Share?

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. Impressively, Shenzhen RongDa Photosensitive Science & Technology has grown EPS by 21% per year, compound, in the last three years. So it's not surprising to see the company trades on a very high multiple of (past) earnings.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. The music to the ears of Shenzhen RongDa Photosensitive Science & Technology shareholders is that EBIT margins have grown from 13% to 16% in the last 12 months and revenues are on an upwards trend as well. Ticking those two boxes is a good sign of growth, in our book.

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 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 RongDa Photosensitive Science & Technology's balance sheet strength, before getting too excited.

Are Shenzhen RongDa Photosensitive Science & Technology 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 RongDa Photosensitive Science & Technology insiders own a significant number of shares certainly is appealing. To be exact, company insiders hold 52% of the company, so their decisions have a significant impact on their investments. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. That means they have plenty of their own capital riding on the performance of the business!

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. Well, based on the CEO pay, you'd argue that they are indeed. Our analysis has discovered that the median total compensation for the CEOs of companies like Shenzhen RongDa Photosensitive Science & Technology with market caps between CN¥7.2b and CN¥23b is about CN¥1.2m.

Shenzhen RongDa Photosensitive Science & Technology's CEO took home a total compensation package worth CN¥876k in the year leading up to December 2023. That seems pretty reasonable, especially given it's below the median for similar 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 good governance, more generally.

Is Shenzhen RongDa Photosensitive Science & Technology Worth Keeping An Eye On?

You can't deny that Shenzhen RongDa Photosensitive Science & Technology has grown its earnings per share at a very impressive rate. That's attractive. If you still have your doubts, remember too that company insiders have a considerable investment aligning themselves with the shareholders and CEO pay is quite modest compared to similarly sized companiess. The overarching message here is that Shenzhen RongDa Photosensitive Science & Technology has underlying strengths that make it worth a look at. You should always think about risks though. Case in point, we've spotted 2 warning signs for Shenzhen RongDa Photosensitive Science & Technology you should be aware of, and 1 of them is a bit concerning.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in CN with promising growth potential and insider confidence.

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.