Here's Why We Think China Energy Engineering (HKG:3996) Is Well Worth Watching

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in China Energy Engineering (HKG:3996). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide China Energy Engineering with the means to add long-term value to shareholders.

Check out our latest analysis for China Energy Engineering

China Energy Engineering's Improving Profits

Even when EPS earnings per share (EPS) growth is unexceptional, company value can be created if this rate is sustained each year. So it's easy to see why many investors focus in on EPS growth. China Energy Engineering's EPS shot up from CN¥0.16 to CN¥0.20; a result that's bound to keep shareholders happy. That's a fantastic gain of 26%.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. It was a year of stability for China Energy Engineering as both revenue and EBIT margins remained have been flat over the past year. That's not bad, but it doesn't point to ongoing future growth, either.

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.

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 China Energy Engineering's balance sheet strength, before getting too excited.

Are China Energy Engineering Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a HK$90b company like China Energy Engineering. But we do take comfort from the fact that they are investors in the company. Holding CN¥431m worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. This would indicate that the goals of shareholders and management are one and the same.

Does China Energy Engineering Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into China Energy Engineering's strong EPS growth. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in China Energy Engineering's continuing strength. The growth and insider confidence is looked upon well and so it's worthwhile to investigate further with a view to discern the stock's true value. Before you take the next step you should know about the 1 warning sign for China Energy Engineering that we have uncovered.

Although China Energy Engineering certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of Hong Kong companies that not only boast of strong growth but have strong insider backing.

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.