Here's Why We Think Hengtong Optic-Electric (SHSE:600487) Might Deserve Your Attention Today

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and 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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

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 Hengtong Optic-Electric (SHSE:600487). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Hengtong Optic-Electric with the means to add long-term value to shareholders.

Check out our latest analysis for Hengtong Optic-Electric

Hengtong Optic-Electric's Earnings Per Share Are Growing

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Shareholders will be happy to know that Hengtong Optic-Electric's EPS has grown 18% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

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. While we note Hengtong Optic-Electric achieved similar EBIT margins to last year, revenue grew by a solid 17% to CN¥55b. That's progress.

In the chart below, you can see how the company has grown earnings and revenue, 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 Hengtong Optic-Electric's future profits.

Are Hengtong Optic-Electric Insiders Aligned With All Shareholders?

Since Hengtong Optic-Electric has a market capitalisation of CN¥43b, we wouldn't expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. Notably, they have an enviable stake in the company, worth CN¥1.9b. This suggests that leadership will be very mindful of shareholders' interests when making decisions!

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. Well, based on the CEO pay, you'd argue that they are indeed. The median total compensation for CEOs of companies similar in size to Hengtong Optic-Electric, with market caps between CN¥29b and CN¥87b, is around CN¥1.9m.

The Hengtong Optic-Electric CEO received CN¥1.3m in compensation for the year ending December 2023. That comes in below the average for similar sized companies and seems pretty reasonable. 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 good governance, more generally.

Should You Add Hengtong Optic-Electric To Your Watchlist?

For growth investors, Hengtong Optic-Electric's raw rate of earnings growth is a beacon in the night. 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 Hengtong Optic-Electric has underlying strengths that make it worth a look at. You should always think about risks though. Case in point, we've spotted 1 warning sign for Hengtong Optic-Electric you should be aware of.

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.