Does Clifford Modern Living Holdings (HKG:3686) Deserve A Spot On Your Watchlist?

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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Clifford Modern Living Holdings (HKG:3686). 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.

Check out our latest analysis for Clifford Modern Living Holdings

Clifford Modern Living Holdings's Earnings Per Share Are Growing.

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That means EPS growth is considered a real positive by most successful long-term investors. Impressively, Clifford Modern Living Holdings has grown EPS by 30% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

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. While we note Clifford Modern Living Holdings's EBIT margins were flat over the last year, revenue grew by a solid 13% to CN¥393m. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

Clifford Modern Living Holdings isn't a huge company, given its market capitalization of HK$599m. That makes it extra important to check on its balance sheet strength.

Are Clifford Modern Living Holdings Insiders Aligned With All Shareholders?

Personally, I like to see high insider ownership of a company, since it suggests that it will be managed in the interests of shareholders. So we're pleased to report that Clifford Modern Living Holdings insiders own a meaningful share of the business. Indeed, with a collective holding of 73%, company insiders are in control and have plenty of capital behind the venture. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. In terms of absolute value, insiders have CN¥437m invested in the business, using the current share price. That should be more than enough to keep them focussed on creating shareholder value!

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. A brief analysis of the CEO compensation suggests they are. For companies with market capitalizations under CN¥1.3b, like Clifford Modern Living Holdings, the median CEO pay is around CN¥1.5m.

The Clifford Modern Living Holdings CEO received total compensation of only CN¥201k in the year to . This could be considered a token amount, and indicates that the company does not need to use payment to motivate the CEO - that is often a good sign. 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 a culture of integrity, in a broader sense.

Is Clifford Modern Living Holdings Worth Keeping An Eye On?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Clifford Modern Living Holdings's strong EPS growth. If you need more convincing beyond that EPS growth rate, don't forget about the reasonable remuneration and the high insider ownership. Each to their own, but I think all this makes Clifford Modern Living Holdings look rather interesting indeed. We should say that we've discovered 3 warning signs for Clifford Modern Living Holdings that you should be aware of before investing here.

Although Clifford Modern Living Holdings certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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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