Here's Why We Think Shanghai Shyndec Pharmaceutical (SHSE:600420) 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. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Shanghai Shyndec Pharmaceutical (SHSE:600420). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Shanghai Shyndec Pharmaceutical with the means to add long-term value to shareholders.

Check out our latest analysis for Shanghai Shyndec Pharmaceutical

How Quickly Is Shanghai Shyndec Pharmaceutical Increasing Earnings Per Share?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That means EPS growth is considered a real positive by most successful long-term investors. We can see that in the last three years Shanghai Shyndec Pharmaceutical grew its EPS by 8.5% per year. That's a good rate of growth, if it can be sustained.

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. We note that while EBIT margins have improved from 8.4% to 13%, the company has actually reported a fall in revenue by 7.3%. That falls short of ideal.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

Fortunately, we've got access to analyst forecasts of Shanghai Shyndec Pharmaceutical's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Shanghai Shyndec Pharmaceutical 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. Shareholders will be pleased by the fact that insiders own Shanghai Shyndec Pharmaceutical shares worth a considerable sum. As a matter of fact, their holding is valued at CN¥215m. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 1.3% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Is Shanghai Shyndec Pharmaceutical Worth Keeping An Eye On?

One important encouraging feature of Shanghai Shyndec Pharmaceutical is that it is growing profits. To add an extra spark to the fire, significant insider ownership in the company is another highlight. That combination is very appealing. So yes, we do think the stock is worth keeping an eye on. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Shanghai Shyndec Pharmaceutical , and understanding this should be part of your investment process.

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.