With EPS Growth And More, China PengFei Group (HKG:3348) Makes An Interesting Case

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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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 China PengFei Group (HKG:3348). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide China PengFei Group with the means to add long-term value to shareholders.

View our latest analysis for China PengFei Group

China PengFei Group's Improving Profits

Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So EPS growth can certainly encourage an investor to take note of a stock. It's good to see that China PengFei Group's EPS has grown from CN¥0.24 to CN¥0.29 over twelve months. There's little doubt shareholders would be happy with that 17% gain.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. EBIT margins for China PengFei Group remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 9.0% to CN¥1.7b. That's a real positive.

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

China PengFei Group isn't a huge company, given its market capitalisation of HK$605m. That makes it extra important to check on its balance sheet strength.

Are China PengFei Group Insiders Aligned With All Shareholders?

Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price. So as you can imagine, the fact that China PengFei Group insiders own a significant number of shares certainly is appealing. Owning 45% of the company, insiders have plenty riding on the performance of the the share price. Those who are comforted by solid insider ownership like this should be happy, as it implies that those running the business are genuinely motivated to create shareholder value. To give you an idea, the value of insiders' holdings in the business are valued at CN¥273m at the current share price. That's nothing to sneeze at!

Should You Add China PengFei Group To Your Watchlist?

As previously touched on, China PengFei Group is a growing business, which is encouraging. To add an extra spark to the fire, significant insider ownership in the company is another highlight. That combination is very appealing. So yes, we do think the stock is worth keeping an eye on. We don't want to rain on the parade too much, but we did also find 3 warning signs for China PengFei Group (1 is concerning!) that you need to be mindful of.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in HK with promising growth potential and insider confidence.

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.