With EPS Growth And More, Dongguan Rural Commercial Bank (HKG:9889) Makes An Interesting Case

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

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 Dongguan Rural Commercial Bank (HKG:9889). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Dongguan Rural Commercial Bank with the means to add long-term value to shareholders.

See our latest analysis for Dongguan Rural Commercial Bank

Dongguan Rural Commercial Bank's Improving Profits

Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So it's easy to see why many investors focus in on EPS growth. Dongguan Rural Commercial Bank has grown its trailing twelve month EPS from CN¥0.83 to CN¥0.88, in the last year. That's a modest gain of 5.9%.

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. Not all of Dongguan Rural Commercial Bank's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. Dongguan Rural Commercial Bank reported flat revenue and EBIT margins over the last year. That's not bad, but it doesn't point to ongoing future growth, either.

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.

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Dongguan Rural Commercial Bank's balance sheet strength, before getting too excited.

Are Dongguan Rural Commercial Bank Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a HK$50b company like Dongguan Rural Commercial Bank. But we do take comfort from the fact that they are investors in the company. Notably, they have an enviable stake in the company, worth CN¥4.2b. Holders should find this level of insider commitment quite encouraging, since it would ensure that the leaders of the company would also experience their success, or failure, with the stock.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Our quick analysis into CEO remuneration would seem to indicate they are. Our analysis has discovered that the median total compensation for the CEOs of companies like Dongguan Rural Commercial Bank with market caps between CN¥29b and CN¥86b is about CN¥5.2m.

The Dongguan Rural Commercial Bank CEO received CN¥2.9m in compensation for the year ending December 2022. That is actually below the median for CEO's of similarly sized companies. 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. It can also be a sign of a culture of integrity, in a broader sense.

Does Dongguan Rural Commercial Bank Deserve A Spot On Your Watchlist?

One important encouraging feature of Dongguan Rural Commercial Bank is that it is growing profits. Earnings growth might be the main attraction for Dongguan Rural Commercial Bank, but the fun does not stop there. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Dongguan Rural Commercial Bank that you should be aware of.

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.

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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.