With EPS Growth And More, First Tractor (HKG:38) Is Interesting

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in First Tractor (HKG:38). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

Check out our latest analysis for First Tractor

First Tractor's Improving Profits

In the last three years First Tractor's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. As a result, I'll zoom in on growth over the last year, instead. Like a firecracker arcing through the night sky, First Tractor's EPS shot from CN¥0.22 to CN¥0.47, over the last year. You don't see 115% year-on-year growth like that, very often. The best case scenario? That the business has hit a true inflection point.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. I note that, last year, First Tractor's revenue from operations was lower than its revenue, so that could distort my analysis of its margins. The good news is that First Tractor is growing revenues, and EBIT margins improved by 10.2 percentage points to 5.2%, over the last year. That's great to see, on both counts.

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.

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 First Tractor's balance sheet strength, before getting too excited.

Are First Tractor Insiders Aligned With All Shareholders?

I always like to check up on CEO compensation, because I think that reasonable pay levels, around or below the median, can be a sign that shareholder interests are well considered. I discovered that the median total compensation for the CEOs of companies like First Tractor with market caps between CN¥6.5b and CN¥21b is about CN¥3.9m.

The First Tractor CEO received total compensation of just CN¥832k in the year to . That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. 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 First Tractor Deserve A Spot On Your Watchlist?

First Tractor's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. Such fast EPS growth makes me wonder if the business has hit an inflection point (and I mean the good kind.) Meanwhile, the very reasonable CEO pay reassures me a little, since it points to an absence profligacy. While I couldn't be sure without a deeper dive, it does seem that First Tractor has the hallmarks of a quality business; and that would make it well worth watching. It's still necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with First Tractor , and understanding them should be part of your investment process.

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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