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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
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 Zhuzhou CRRC Times Electric (HKG:3898). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
Zhuzhou CRRC Times Electric'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 it's no surprise that some investors are more inclined to invest in profitable businesses. It's good to see that Zhuzhou CRRC Times Electric's EPS has grown from CN¥1.61 to CN¥2.00 over twelve months. There's little doubt shareholders would be happy with that 25% 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 Zhuzhou CRRC Times Electric remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 23% to CN¥20b. That's encouraging news for the company!
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Zhuzhou CRRC Times Electric?
Are Zhuzhou CRRC Times Electric Insiders Aligned With All Shareholders?
As a general rule, it's worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. Our analysis has discovered that the median total compensation for the CEOs of companies like Zhuzhou CRRC Times Electric with market caps between CN¥29b and CN¥88b is about CN¥6.3m.
The Zhuzhou CRRC Times Electric CEO received total compensation of just CN¥1.6m in the year to December 2022. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.
Should You Add Zhuzhou CRRC Times Electric To Your Watchlist?
One important encouraging feature of Zhuzhou CRRC Times Electric is that it is growing profits. To add to this, the modest CEO compensation should tell investors that the directors have an active interest in delivering the best for shareholders. All things considered, Zhuzhou CRRC Times Electric is definitely worth taking a deeper dive into. Now, you could try to make up your mind on Zhuzhou CRRC Times Electric by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
Although Zhuzhou CRRC Times Electric certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, 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.
Valuation is complex, but we're helping make it simple.
Find out whether Zhuzhou CRRC Times Electric is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
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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.
Zhuzhou CRRC Times Electric
Zhuzhou CRRC Times Electric Co., Ltd., together with its subsidiaries, engages in the research, development, design, manufacture, and sale of railway transportation equipment products, and provision of relevant services primarily in Mainland China and internationally.
Excellent balance sheet with proven track record.