Stock Analysis

I Ran A Stock Scan For Earnings Growth And Zhaobangji Properties Holdings (HKG:1660) Passed With Ease

SEHK:1660
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It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

In contrast to all that, I prefer to spend time on companies like Zhaobangji Properties Holdings (HKG:1660), which has not only revenues, but also profits. 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.

View our latest analysis for Zhaobangji Properties Holdings

Zhaobangji Properties Holdings's Earnings Per Share Are 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). It's no surprise, then, that I like to invest in companies with EPS growth. Who among us would not applaud Zhaobangji Properties Holdings's stratospheric annual EPS growth of 40%, compound, over the last three years? Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Zhaobangji Properties Holdings's EBIT margins have actually improved by 15.0 percentage points in the last year, to reach 34%, but, on the flip side, revenue was down 18%. That's not ideal.

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.

earnings-and-revenue-history
SEHK:1660 Earnings and Revenue History March 5th 2021

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Zhaobangji Properties Holdings Insiders Aligned With All Shareholders?

It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. As a result, I'm encouraged by the fact that insiders own Zhaobangji Properties Holdings shares worth a considerable sum. To be specific, they have HK$248m worth of shares. That's a lot of money, and no small incentive to work hard. Even though that's only about 4.9% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I'd say they are indeed. I discovered that the median total compensation for the CEOs of companies like Zhaobangji Properties Holdings with market caps between HK$3.1b and HK$12b is about HK$3.1m.

The CEO of Zhaobangji Properties Holdings only received HK$504k in total compensation for the year ending . 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. It can also be a sign of good governance, more generally.

Is Zhaobangji Properties Holdings Worth Keeping An Eye On?

Zhaobangji Properties Holdings's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The sharp increase in earnings could signal good business momentum. Zhaobangji Properties Holdings certainly ticks a few of my boxes, so I think it's probably well worth further consideration. Even so, be aware that Zhaobangji Properties Holdings is showing 1 warning sign in our investment analysis , you should know about...

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

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

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