Here's Why Qingdao Gaoce Technology (SHSE:688556) Has Caught The Eye Of Investors

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 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 Qingdao Gaoce Technology (SHSE:688556), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Qingdao Gaoce Technology with the means to add long-term value to shareholders.

See our latest analysis for Qingdao Gaoce Technology

Qingdao Gaoce Technology's Improving Profits

In the last three years Qingdao Gaoce Technology's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. As a result, we'll zoom in on growth over the last year, instead. Outstandingly, Qingdao Gaoce Technology's EPS shot from CN¥1.54 to CN¥4.52, over the last year. Year on year growth of 193% is certainly a sight to behold. The best case scenario? That the business has hit a true inflection point.

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. Qingdao Gaoce Technology shareholders can take confidence from the fact that EBIT margins are up from 21% to 31%, and revenue is growing. 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.

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Qingdao Gaoce Technology's future profits.

Are Qingdao Gaoce Technology 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. So it is good to see that Qingdao Gaoce Technology insiders have a significant amount of capital invested in the stock. We note that their impressive stake in the company is worth CN¥3.4b. That equates to 33% of the company, making insiders powerful and aligned with other shareholders. Looking very optimistic for investors.

Is Qingdao Gaoce Technology Worth Keeping An Eye On?

Qingdao Gaoce Technology's earnings have taken off in quite an impressive fashion. 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. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. Based on the sum of its parts, we definitely think its worth watching Qingdao Gaoce Technology very closely. It's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Qingdao Gaoce Technology (at least 1 which is significant) , and understanding them should be part of your investment process.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of Chinese companies which have demonstrated growth backed by recent insider purchases.

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.