Should You Be Adding Sichuan Kelun Pharmaceutical (SZSE:002422) To Your Watchlist Today?

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Sichuan Kelun Pharmaceutical (SZSE:002422). 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 Sichuan Kelun Pharmaceutical

How Fast Is Sichuan Kelun Pharmaceutical Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Recognition must be given to the that Sichuan Kelun Pharmaceutical has grown EPS by 37% 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.

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. Our analysis has highlighted that Sichuan Kelun Pharmaceutical's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. The music to the ears of Sichuan Kelun Pharmaceutical shareholders is that EBIT margins have grown from 15% to 17% in the last 12 months and revenues are on an upwards trend as well. 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.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Sichuan Kelun Pharmaceutical.

Are Sichuan Kelun Pharmaceutical Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a CN¥50b company like Sichuan Kelun Pharmaceutical. But we are reassured by the fact they have invested in the company. Notably, they have an enviable stake in the company, worth CN¥14b. Coming in at 27% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. Very encouraging.

Is Sichuan Kelun Pharmaceutical Worth Keeping An Eye On?

Sichuan Kelun Pharmaceutical's earnings per share have been soaring, with growth rates sky high. That sort of growth is nothing short of eye-catching, and the large investment held by insiders should certainly brighten the view of the company. 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 at the surface level, Sichuan Kelun Pharmaceutical is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. Even so, be aware that Sichuan Kelun Pharmaceutical is showing 2 warning signs in our investment analysis , you should know about...

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 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.