Stock Analysis

Should You Be Adding Bank of China (HKG:3988) To Your Watchlist Today?

Published
SEHK:3988
Source: Shutterstock

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. 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 Bank of China (HKG:3988). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Bank of China with the means to add long-term value to shareholders.

See our latest analysis for Bank of China

How Quickly Is Bank of China 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. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Bank of China managed to grow EPS by 6.3% per year, over three years. While that sort of growth rate isn't anything to write home about, it does show the business is growing.

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. Our analysis has highlighted that Bank of China's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. Bank of China maintained stable EBIT margins over the last year, all while growing revenue 5.9% to CN¥517b. 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. For finer detail, click on the image.

earnings-and-revenue-history
SEHK:3988 Earnings and Revenue History March 17th 2023

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Bank of China's future EPS 100% free.

Are Bank of China Insiders Aligned With All Shareholders?

Prior to investment, it's always a good idea to check that the management team is paid reasonably. Pay levels around or below the median, can be a sign that shareholder interests are well considered. Our analysis has discovered that the median total compensation for the CEOs of companies like Bank of China, with market caps over CN¥55b, is about CN¥5.8m.

The Bank of China CEO received total compensation of just CN¥616k in the year to 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.

Does Bank of China Deserve A Spot On Your Watchlist?

One positive for Bank of China is that it is growing EPS. That's nice to see. Not only that, but the CEO is paid quite reasonably, which should prompt investors to feel more trusting of the board of directors. So based on its merits, the stock deserves further research, if not an addition to your watchlist. Before you take the next step you should know about the 1 warning sign for Bank of China that we have uncovered.

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 free list of them here.

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

Valuation is complex, but we're helping make it simple.

Find out whether Bank of China is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis