Here's Why We Think Yadea Group Holdings (HKG:1585) 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. 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. 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 Yadea Group Holdings (HKG:1585). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

View our latest analysis for Yadea Group Holdings

How Quickly Is Yadea Group Holdings 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. That means EPS growth is considered a real positive by most successful long-term investors. To the delight of shareholders, Yadea Group Holdings has achieved impressive annual EPS growth of 48%, compound, over the last three years. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. While we note Yadea Group Holdings achieved similar EBIT margins to last year, revenue grew by a solid 39% to CN¥27b. That's encouraging news for the company!

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Yadea Group Holdings?

Are Yadea Group Holdings Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

One shining light for Yadea Group Holdings is the serious outlay one insider has made to buy shares, in the last year. In one fell swoop, Vice Chairwoman & CEO Jinghong Qian, spent HK$26m, at a price of HK$11.07 per share. Seeing such high conviction in the company is a huge positive for shareholders and should instil confidence in their mission.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Yadea Group Holdings insiders own more than a third of the company. In fact, they own 65% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. At the current share price, that insider holding is worth a staggering CN¥29b. This is an incredible endorsement from them.

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because Yadea Group Holdings' CEO, Jinghong Qian, is paid at a relatively modest level when compared to other CEOs for companies of this size. For companies with market capitalisations between CN¥27b and CN¥80b, like Yadea Group Holdings, the median CEO pay is around CN¥4.0m.

The CEO of Yadea Group Holdings only received CN¥1.1m in total compensation for the year ending December 2021. First impressions seem to indicate a compensation policy that is favourable to shareholders. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is Yadea Group Holdings Worth Keeping An Eye On?

Yadea Group Holdings' earnings per share have been soaring, with growth rates sky high. The icing on the cake is that insiders own a large chunk of the company and one has even been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Yadea Group Holdings deserves timely attention. It's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Yadea Group Holdings , and understanding these should be part of your investment process.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Yadea Group Holdings, you'll probably love this free list of growing companies that insiders are buying.

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.