Here's Why We Think Chuan Holdings (HKG:1420) Is Well Worth Watching

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 currently 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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like Chuan Holdings (HKG:1420), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

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Chuan Holdings' Improving Profits

Chuan Holdings has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. As a result, we'll zoom in on growth over the last year, instead. Impressively, Chuan Holdings' EPS catapulted from S$0.0031 to S$0.0064, over the last year. Year on year growth of 106% is certainly a sight to behold.

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 Chuan Holdings' 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. Chuan Holdings shareholders can take confidence from the fact that EBIT margins are up from 1.2% to 7.4%, and revenue is growing. Both of which are great metrics to check off for potential growth.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

Check out our latest analysis for Chuan Holdings

Since Chuan Holdings is no giant, with a market capitalisation of HK$206m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Chuan Holdings Insiders Aligned With All Shareholders?

Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price. So those who are interested in Chuan Holdings will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. In fact, they own 62% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. To give you an idea, the value of insiders' holdings in the business are valued at S$127m at the current share price. So there's plenty there to keep them focused!

Should You Add Chuan Holdings To Your Watchlist?

Chuan Holdings' earnings per share have been soaring, with growth rates sky high. That sort of growth is nothing short of eye-catching, and the large investment held by insiders should certainly brighten the view of the company. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So at the surface level, Chuan Holdings is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. We should say that we've discovered 1 warning sign for Chuan Holdings that you should be aware of before investing here.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in HK with promising growth potential and insider confidence.

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.