Here’s Why We Think Brilliance China Automotive Holdings (HKG:1114) Is Well Worth Watching

It’s only natural that many investors, especially those who are new to the game, prefer to buy shares in ‘sexy’ stocks with a good story, even if those businesses lose money. But as Warren Buffett has mused, ‘If you’ve been playing poker for half an hour and you still don’t know who the patsy is, you’re the patsy.’ When they buy such story stocks, investors are all too often the patsy.

In contrast to all that, I prefer to spend time on companies like Brilliance China Automotive Holdings (HKG:1114), which has not only revenues, but also profits. While profit is not necessarily a social good, it’s easy to admire a business than can consistently produce it. In comparison, loss making companies act like a sponge for capital – but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for Brilliance China Automotive Holdings

Brilliance China Automotive Holdings’s Earnings Per Share Are Growing.

If you believe that markets are even vaguely efficient, then over the long term you’d expect a company’s share price to follow its earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Brilliance China Automotive Holdings has managed to grow EPS by 18% per year over three years. As a general rule, we’d say that if a company can keep up that sort of growth, shareholders will be smiling.

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. Brilliance China Automotive Holdings’s EBIT margins are flat but, of some concern, its revenue is actually down. Suffice it to say that is not a great sign of growth.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

SEHK:1114 Income Statement, April 18th 2019
SEHK:1114 Income Statement, April 18th 2019

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 Brilliance China Automotive Holdings’s future profits.

Are Brilliance China Automotive Holdings Insiders Aligned With All Shareholders?

Should You Add Brilliance China Automotive Holdings To Your Watchlist?

For growth investors like me, Brilliance China Automotive Holdings’s raw rate of earnings growth is a beacon in the night. Of course, just because Brilliance China Automotive Holdings is growing does not mean it is undervalued. If you’re wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Although Brilliance China Automotive Holdings certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you’re looking for.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.