Stock Analysis

Should You Be Adding Zhaobangji Properties Holdings (HKG:1660) To Your Watchlist Today?

SEHK:1660
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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. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

So if you're like me, you might be more interested in profitable, growing companies, like Zhaobangji Properties Holdings (HKG:1660). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for Zhaobangji Properties Holdings

How Quickly Is Zhaobangji Properties Holdings Increasing Earnings Per Share?

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). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Who among us would not applaud Zhaobangji Properties Holdings's stratospheric annual EPS growth of 40%, compound, over the last three years? That sort of growth never lasts long, but like a shooting star it is well worth watching when it happens.

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. 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 falls short of ideal.

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.

earnings-and-revenue-history
SEHK:1660 Earnings and Revenue History December 4th 2020

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 Zhaobangji Properties Holdings's balance sheet strength, before getting too excited.

Are Zhaobangji Properties Holdings Insiders Aligned With All Shareholders?

I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. 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$288m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. 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's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. 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$3.6m.

The CEO of Zhaobangji Properties Holdings only received HK$504k in total compensation for the year ending . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.

Does Zhaobangji Properties Holdings Deserve A Spot On Your Watchlist?

Zhaobangji Properties Holdings's earnings per share have taken off like a rocket aimed right at the moon. 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. You should always think about risks though. Case in point, we've spotted 1 warning sign for Zhaobangji Properties Holdings you should be aware of.

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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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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