With EPS Growth And More, Hexing ElectricalLtd (SHSE:603556) Makes An Interesting Case

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

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 Hexing ElectricalLtd (SHSE:603556). 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.

Check out our latest analysis for Hexing ElectricalLtd

How Quickly Is Hexing ElectricalLtd Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. It certainly is nice to see that Hexing ElectricalLtd has managed to grow EPS by 30% per year over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

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. Hexing ElectricalLtd shareholders can take confidence from the fact that EBIT margins are up from 19% to 23%, and revenue is growing. Ticking those two boxes is a good sign of growth, in our book.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Hexing ElectricalLtd.

Are Hexing ElectricalLtd 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. Hexing ElectricalLtd followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. Notably, they have an enviable stake in the company, worth CN¥2.6b. Holders should find this level of insider commitment quite encouraging, since it would ensure that the leaders of the company would also experience their success, or failure, with the stock.

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. 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 Hexing ElectricalLtd with market caps between CN¥14b and CN¥46b is about CN¥1.5m.

The Hexing ElectricalLtd CEO received CN¥1.1m in compensation for the year ending December 2022. 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.

Should You Add Hexing ElectricalLtd To Your Watchlist?

You can't deny that Hexing ElectricalLtd has grown its earnings per share at a very impressive rate. That's attractive. If you still have your doubts, remember too that company insiders have a considerable investment aligning themselves with the shareholders and CEO pay is quite modest compared to similarly sized companiess. Everyone has their own preferences when it comes to investing but it definitely makes Hexing ElectricalLtd look rather interesting indeed. You still need to take note of risks, for example - Hexing ElectricalLtd has 1 warning sign we think 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.