Do Suzhou Hengmingda Electronic Technology's (SZSE:002947) Earnings Warrant Your Attention?

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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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.

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 Suzhou Hengmingda Electronic Technology (SZSE:002947). 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.

View our latest analysis for Suzhou Hengmingda Electronic Technology

How Fast Is Suzhou Hengmingda Electronic Technology Growing Its Earnings Per Share?

In the last three years Suzhou Hengmingda Electronic 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. Suzhou Hengmingda Electronic Technology's EPS skyrocketed from CN¥1.02 to CN¥1.56, in just one year; a result that's bound to bring a smile to shareholders. That's a impressive gain of 53%.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. The music to the ears of Suzhou Hengmingda Electronic Technology shareholders is that EBIT margins have grown from 13% to 20% in the last 12 months and revenues are on an upwards trend as well. Both of which are great metrics to check off for potential growth.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

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 Suzhou Hengmingda Electronic Technology's balance sheet strength, before getting too excited.

Are Suzhou Hengmingda Electronic Technology Insiders Aligned With All Shareholders?

Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price. So we're pleased to report that Suzhou Hengmingda Electronic Technology insiders own a meaningful share of the business. Owning 40% of the company, insiders have plenty riding on the performance of the the share price. Those who are comforted by solid insider ownership like this should be happy, as it implies that those running the business are genuinely motivated to create shareholder value. CN¥3.4b That means they have plenty of their own capital riding on the performance of the business!

Should You Add Suzhou Hengmingda Electronic Technology To Your Watchlist?

For growth investors, Suzhou Hengmingda Electronic Technology's raw rate of earnings growth is a beacon in the night. With EPS growth rates like that, it's hardly surprising to see company higher-ups place confidence in the company through continuing to hold a significant investment. Fast growth and confident insiders should be enough to warrant further research, so it would seem that it's a good stock to follow. You should always think about risks though. Case in point, we've spotted 3 warning signs for Suzhou Hengmingda Electronic Technology you should be aware of, and 1 of them shouldn't be ignored.

Although Suzhou Hengmingda Electronic Technology certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of Chinese companies that not only boast of strong growth but have strong insider backing.

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.