Here's Why We Think Founder Technology GroupLtd (SHSE:600601) Is Well Worth Watching

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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Founder Technology GroupLtd (SHSE:600601). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Founder Technology GroupLtd with the means to add long-term value to shareholders.

Check out our latest analysis for Founder Technology GroupLtd

Founder Technology GroupLtd's Improving Profits

Over the last three years, Founder Technology GroupLtd 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. Outstandingly, Founder Technology GroupLtd's EPS shot from CN¥0.023 to CN¥0.054, over the last year. Year on year growth of 132% is certainly a sight to behold.

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 Founder Technology GroupLtd'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. We note that while EBIT margins have improved from -0.7% to 7.0%, the company has actually reported a fall in revenue by 12%. While not disastrous, these figures could be better.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

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 Founder Technology GroupLtd's balance sheet strength, before getting too excited.

Are Founder Technology GroupLtd Insiders Aligned With All Shareholders?

It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. So it is good to see that Founder Technology GroupLtd insiders have a significant amount of capital invested in the stock. Given insiders own a significant chunk of shares, currently valued at CN¥528m, they have plenty of motivation to push the business to succeed. This should keep them focused on creating long term value for shareholders.

Is Founder Technology GroupLtd Worth Keeping An Eye On?

Founder Technology GroupLtd'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. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So at the surface level, Founder Technology GroupLtd is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. It's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Founder Technology GroupLtd (at least 1 which is a bit concerning) , and understanding these should be part of your investment process.

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.