Is Now The Time To Put Wedge IndustrialLtd (SZSE:000534) On Your Watchlist?

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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 Wedge IndustrialLtd (SZSE:000534). 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 Wedge IndustrialLtd

How Fast Is Wedge IndustrialLtd Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Shareholders will be happy to know that Wedge IndustrialLtd's EPS has grown 29% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. While we note Wedge IndustrialLtd achieved similar EBIT margins to last year, revenue grew by a solid 9.8% to CN¥1.0b. That's a real positive.

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 Wedge IndustrialLtd's balance sheet strength, before getting too excited.

Are Wedge IndustrialLtd 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 Wedge IndustrialLtd shares worth a considerable sum. Indeed, they hold CN¥298m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 4.8% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? 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 Wedge IndustrialLtd with market caps between CN¥2.9b and CN¥12b is about CN¥953k.

The Wedge IndustrialLtd CEO received CN¥568k in compensation for the year ending December 2023. That is actually below the median for CEO's of similarly sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.

Does Wedge IndustrialLtd Deserve A Spot On Your Watchlist?

You can't deny that Wedge IndustrialLtd has grown its earnings per share at a very impressive rate. That's attractive. If you need more convincing beyond that EPS growth rate, don't forget about the reasonable remuneration and the high insider ownership. The overarching message here is that Wedge IndustrialLtd has underlying strengths that make it worth a look at. Before you take the next step you should know about the 3 warning signs for Wedge IndustrialLtd (2 are significant!) that we have uncovered.

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.