Here's Why Continental Aerospace Technologies Holding (HKG:232) Has Caught The Eye Of Investors

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Continental Aerospace Technologies Holding (HKG:232). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Continental Aerospace Technologies Holding with the means to add long-term value to shareholders.

View our latest analysis for Continental Aerospace Technologies Holding

Continental Aerospace Technologies Holding's Improving Profits

Investors and investment funds chase profits, and that means share prices tend rise with positive earnings per share (EPS) outcomes. Which is why EPS growth is looked upon so favourably. It is awe-striking that Continental Aerospace Technologies Holding's EPS went from HK$0.0055 to HK$0.017 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. On the revenue front, Continental Aerospace Technologies Holding has done well over the past year, growing revenue by 9.9% to HK$1.8b but EBIT margin figures were less stellar, seeing a decline over the last 12 months. So it seems the future may hold further growth, especially if EBIT margins can remain steady.

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

Since Continental Aerospace Technologies Holding is no giant, with a market capitalisation of HK$1.7b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Continental Aerospace Technologies Holding Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The good news for Continental Aerospace Technologies Holding shareholders is that no insiders reported selling shares in the last year. Add in the fact that Xiaodong Yu, the CEO & Executive Director of the company, paid HK$94k for shares at around HK$0.075 each. It seems that at least one insider is prepared to show the market there is potential within Continental Aerospace Technologies Holding.

It's reassuring that Continental Aerospace Technologies Holding insiders are buying the stock, but that's not the only reason to think management are fair to shareholders. To be specific, the CEO is paid modestly when compared to company peers of the same size. The median total compensation for CEOs of companies similar in size to Continental Aerospace Technologies Holding, with market caps between HK$781m and HK$3.1b, is around HK$2.7m.

The Continental Aerospace Technologies Holding CEO received HK$1.8m in compensation for the year ending December 2023. That comes in below the average for similar sized companies and seems pretty reasonable. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.

Does Continental Aerospace Technologies Holding Deserve A Spot On Your Watchlist?

Continental Aerospace Technologies Holding's earnings per share have been soaring, with growth rates sky high. Better yet, we can observe insider buying and the chief executive pay looks reasonable. The strong EPS growth suggests Continental Aerospace Technologies Holding may be at an inflection point. If so, then its potential for further gains probably merit a spot on your watchlist. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Continental Aerospace Technologies Holding , and understanding it should be part of your investment process.

The good news is that Continental Aerospace Technologies Holding is not the only stock with insider buying. Here's a list of small cap, undervalued companies in HK 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. 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.