Does Bank of Communications (HKG:3328) Deserve A Spot On Your Watchlist?

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Bank of Communications (HKG:3328). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

Check out our latest analysis for Bank of Communications

How Quickly Is Bank of Communications 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). That makes EPS growth an attractive quality for any company. Over the last three years, Bank of Communications has grown EPS by 5.1% per year. While that sort of growth rate isn't amazing, it does show the business is growing.

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. I note that Bank of Communications's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. While we note Bank of Communications's EBIT margins were flat over the last year, revenue grew by a solid 7.9% to CN¥191b. That's progress.

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.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Bank of Communications's forecast profits?

Are Bank of Communications Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. 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.

Like a sturdy phalanx Bank of Communications insiders have stood united by refusing to sell shares over the last year. But my excitement comes from the CN¥870k that Executive Chairman Deqi Ren spent buying shares (at an average price of about CN¥4.35).

I do like that insiders have been buying shares in Bank of Communications, but there is more evidence of shareholder friendly management. Specifically, the CEO is paid quite reasonably for a company of this size. I discovered that the median total compensation for the CEOs of companies like Bank of Communications, with market caps over CN¥52b, is about CN¥6.5m.

The CEO of Bank of Communications was paid just CN¥454k in total compensation for the year ending . This could be considered a token amount, and indicates that the company does not need to use payment to motivate the CEO - that is often a good sign. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.

Is Bank of Communications Worth Keeping An Eye On?

One important encouraging feature of Bank of Communications is that it is growing profits. And that's not all, folks. We've also seen insiders buying stock, and noted modest executive pay. The sum of all that, for me, points to a quality business, and a genuine prospect for further research. What about risks? Every company has them, and we've spotted 1 warning sign for Bank of Communications you should know about.

As a growth investor I do like to see insider buying. But Bank of Communications isn't the only one. You can see a a free list of them here.

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

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.

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