Here's Why I Think Metallurgical Corporation of China (HKG:1618) Is An Interesting Stock

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

So if you're like me, you might be more interested in profitable, growing companies, like Metallurgical Corporation of China (HKG:1618). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

Check out our latest analysis for Metallurgical Corporation of China

Metallurgical Corporation of China's Earnings Per Share Are Growing.

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Over the last three years, Metallurgical Corporation of China has grown EPS by 8.1% per year. That's a pretty good rate, if the company can sustain it.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note Metallurgical Corporation of China's EBIT margins were flat over the last year, revenue grew by a solid 18% to CN¥400b. 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.

Fortunately, we've got access to analyst forecasts of Metallurgical Corporation of China's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Metallurgical Corporation of China Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a HK$79b company like Metallurgical Corporation of China. But we do take comfort from the fact that they are investors in the company. Indeed, they hold CN¥297m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 0.4% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. A brief analysis of the CEO compensation suggests they are. I discovered that the median total compensation for the CEOs of companies like Metallurgical Corporation of China, with market caps over CN¥52b, is about CN¥5.5m.

The Metallurgical Corporation of China CEO received total compensation of just CN¥1.7m in the year to . That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. I'd also argue reasonable pay levels attest to good decision making more generally.

Should You Add Metallurgical Corporation of China To Your Watchlist?

One important encouraging feature of Metallurgical Corporation of China is that it is growing profits. Earnings growth might be the main game for Metallurgical Corporation of China, 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 3 warning signs for Metallurgical Corporation of China that you should be aware of.

Although Metallurgical Corporation of China certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, 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. 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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