Should You Be Adding Chuan Holdings (HKG:1420) To Your Watchlist Today?

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Chuan Holdings (HKG:1420). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

See our latest analysis for Chuan Holdings

How Fast Is Chuan Holdings Growing?

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 means EPS growth is considered a real positive by most successful long-term investors. It certainly is nice to see that Chuan Holdings has managed to grow EPS by 20% per year over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. EBIT margins for Chuan Holdings remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 3.7% to S$89m. That's a real positive.

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

Since Chuan Holdings is no giant, with a market capitalisation of HK$109m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Chuan Holdings Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So we're pleased to report that Chuan Holdings insiders own a meaningful share of the business. To be exact, company insiders hold 53% of the company, so their decisions have a significant impact on their investments. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. Although, with Chuan Holdings being valued at HK$109m, this is a small company we're talking about. So despite a large proportional holding, insiders only have S$58m worth of stock. This isn't an overly large holding but it should still keep the insiders motivated to deliver the best outcomes for shareholders.

Does Chuan Holdings Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Chuan Holdings' strong EPS growth. This EPS growth rate is something the company should be proud of, and so it's no surprise that insiders are holding on to a considerable chunk of shares. The growth and insider confidence is looked upon well and so it's worthwhile to investigate further with a view to discern the stock's true value. Even so, be aware that Chuan Holdings is showing 4 warning signs in our investment analysis , and 1 of those is a bit concerning...

Although Chuan Holdings certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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.