With EPS Growth And More, Great Wall Motor (HKG:2333) Makes An Interesting Case

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Great Wall Motor (HKG:2333). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Great Wall Motor with the means to add long-term value to shareholders.

See our latest analysis for Great Wall Motor

How Quickly Is Great Wall Motor Increasing Earnings Per Share?

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) outcomes. That makes EPS growth an attractive quality for any company. It certainly is nice to see that Great Wall Motor has managed to grow EPS by 20% per year over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. The music to the ears of Great Wall Motor shareholders is that EBIT margins have grown from 1.8% to 5.6% in the last 12 months and revenues are on an upwards trend as well. Ticking those two boxes is a good sign of growth, in our book.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

Fortunately, we've got access to analyst forecasts of Great Wall Motor's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Great Wall Motor Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a HK$183b company like Great Wall Motor. But we do take comfort from the fact that they are investors in the company. As a matter of fact, their holding is valued at CN¥124m. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 0.07% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, you'd argue that they are indeed. The median total compensation for CEOs of companies similar in size to Great Wall Motor, with market caps over CN¥57b, is around CN¥5.6m.

Great Wall Motor's CEO took home a total compensation package worth CN¥4.5m in the year leading up to December 2023. That comes in below the average for similar sized companies and seems pretty reasonable. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Should You Add Great Wall Motor To Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Great Wall Motor's strong EPS growth. If you need more convincing beyond that EPS growth rate, don't forget about the reasonable remuneration and the high insider ownership. The overarching message here is that Great Wall Motor has underlying strengths that make it worth a look at. We should say that we've discovered 1 warning sign for Great Wall Motor that you should be aware of before investing here.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of Hong Kong companies which have demonstrated growth backed by significant insider holdings.

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.