If EPS Growth Is Important To You, Sichuan Kelun Pharmaceutical (SZSE:002422) Presents An Opportunity

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. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

In contrast to all that, many investors prefer to focus on companies like Sichuan Kelun Pharmaceutical (SZSE:002422), which has not only revenues, but also profits. Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

See our latest analysis for Sichuan Kelun Pharmaceutical

How Quickly Is Sichuan Kelun Pharmaceutical Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. That means EPS growth is considered a real positive by most successful long-term investors. To the delight of shareholders, Sichuan Kelun Pharmaceutical has achieved impressive annual EPS growth of 60%, compound, over the last three years. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.

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. EBIT margins for Sichuan Kelun Pharmaceutical remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 12% to CN¥21b. That's progress.

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

Fortunately, we've got access to analyst forecasts of Sichuan Kelun 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 Sichuan Kelun Pharmaceutical Insiders Aligned With All Shareholders?

Since Sichuan Kelun Pharmaceutical has a market capitalisation of CN¥46b, we wouldn't expect insiders to hold a large percentage of shares. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. We note that their impressive stake in the company is worth CN¥14b. That equates to 30% of the company, making insiders powerful and aligned with other shareholders. So there is opportunity here to invest in a company whose management have tangible incentives to deliver.

Is Sichuan Kelun Pharmaceutical Worth Keeping An Eye On?

Sichuan Kelun Pharmaceutical's earnings have taken off in quite an impressive fashion. This level of EPS growth does wonders for attracting investment, and the large insider investment in the company is just the cherry on top. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. So based on this quick analysis, we do think it's worth considering Sichuan Kelun Pharmaceutical for a spot on your watchlist. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for Sichuan Kelun Pharmaceutical that you should be aware of.

Although Sichuan Kelun Pharmaceutical certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with insider buying, then check out this handpicked selection of Chinese companies that not only boast of strong growth but have also seen recent insider buying..

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.