Does Man King Holdings (HKG:2193) Deserve A Spot On Your Watchlist?

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 Man King Holdings (HKG:2193). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. 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 Man King Holdings

How Fast Is Man King Holdings Growing Its Earnings Per Share?

In business, though not in life, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS). So like a ray of sunshine through a gap in the clouds, improving EPS is considered a good sign. It is therefore awe-striking that Man King Holdings's EPS went from HK$0.0089 to HK$0.087 in just one year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

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). Man King Holdings shareholders can take confidence from the fact that EBIT margins are up from -2.5% to 7.1%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

Man King Holdings isn't a huge company, given its market capitalization of HK$143m. That makes it extra important to check on its balance sheet strength.

Are Man King Holdings Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The good news for Man King Holdings shareholders is that no insiders reported selling shares in the last year. So it's definitely nice that Wai Sze Tam bought HK$360k worth of shares at an average price of around HK$0.28.

Is Man King Holdings Worth Keeping An Eye On?

Man King Holdings's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. If you're like me, you'll find it hard to ignore that sort of explosive EPS growth. And in fact, it could well signal a fundamental shift in the business economics. For me, this situation certainly piques my interest. What about risks? Every company has them, and we've spotted 2 warning signs for Man King Holdings you should know about.

As a growth investor I do like to see insider buying. But Man King Holdings isn't the only one. You can see a a free list of them here.

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.