Here's Why We Think Shanghai Stonehill Technology (SZSE:002195) Might Deserve Your Attention 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. 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.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Shanghai Stonehill Technology (SZSE:002195). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

View our latest analysis for Shanghai Stonehill Technology

Shanghai Stonehill Technology's Improving Profits

Over the last three years, Shanghai Stonehill Technology has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. Thus, it makes sense to focus on more recent growth rates, instead. To the delight of shareholders, Shanghai Stonehill Technology's EPS soared from CN¥0.039 to CN¥0.053, over the last year. That's a fantastic gain of 38%.

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. The previous 12 months are something that Shanghai Stonehill Technology will want to put behind them after seeing a drop in EBIT margin and revenue for the period. That will not make it easy to grow profits, to say the least.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Shanghai Stonehill 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. Shanghai Stonehill Technology followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. To be specific, they have CN¥259m worth of shares. This considerable investment should help drive long-term value in the business. Despite being just 1.6% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Should You Add Shanghai Stonehill Technology To Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Shanghai Stonehill Technology's strong EPS growth. This EPS growth rate is something the company should be proud of, and so it's no surprise that insiders are holding on to a considerable chunk of shares. The growth and insider confidence is looked upon well and so it's worthwhile to investigate further with a view to discern the stock's true value. What about risks? Every company has them, and we've spotted 2 warning signs for Shanghai Stonehill Technology (of which 1 is a bit unpleasant!) you should know about.

Although Shanghai Stonehill Technology 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.