Is Now The Time To Put Shinelong Automotive Lightweight Application (HKG:1930) On Your Watchlist?

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 completely lacks a track record of revenue and profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Shinelong Automotive Lightweight Application (HKG:1930). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. 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 Shinelong Automotive Lightweight Application

Shinelong Automotive Lightweight Application's Improving Profits

Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So EPS growth can certainly encourage an investor to take note of a stock. Like a wedge-tailed eagle on the wind, Shinelong Automotive Lightweight Application's EPS soared from CN¥0.041 to CN¥0.061, in just one year. That's a impressive gain of 48%.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Unfortunately, Shinelong Automotive Lightweight Application's revenue dropped 6.7% last year, but the silver lining is that EBIT margins improved from 12% to 21%. That's not ideal.

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

Shinelong Automotive Lightweight Application isn't a huge company, given its market capitalization of HK$488m. That makes it extra important to check on its balance sheet strength.

Are Shinelong Automotive Lightweight Application Insiders Aligned With All Shareholders?

It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. So it is good to see that Shinelong Automotive Lightweight Application insiders have a significant amount of capital invested in the stock. To be specific, they have CN¥93m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 19% of the company; visible skin in the game.

Does Shinelong Automotive Lightweight Application Deserve A Spot On Your Watchlist?

You can't deny that Shinelong Automotive Lightweight Application has grown its earnings per share at a very impressive rate. That's attractive. Further, the high level of insider ownership impresses me, and suggests that I'm not the only one who appreciates the EPS growth. Fast growth and confident insiders should be enough to warrant further research. So the answer is that I do think this is a good stock to follow along with. However, before you get too excited we've discovered 2 warning signs for Shinelong Automotive Lightweight Application (1 is a bit concerning!) that you should be aware of.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

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. 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.
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