Here's Why I Think Zhengzhou Coal Mining Machinery Group (HKG:564) Might Deserve Your Attention Today

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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

So if you're like me, you might be more interested in profitable, growing companies, like Zhengzhou Coal Mining Machinery Group (HKG:564). 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.

See our latest analysis for Zhengzhou Coal Mining Machinery Group

Zhengzhou Coal Mining Machinery Group'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. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. I, for one, am blown away by the fact that Zhengzhou Coal Mining Machinery Group has grown EPS by 54% per year, over the last three years. That sort of growth never lasts long, but like a shooting star it is well worth watching when it happens.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Not all of Zhengzhou Coal Mining Machinery Group's revenue last year was revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. The good news is that Zhengzhou Coal Mining Machinery Group is growing revenues, and EBIT margins improved by 3.6 percentage points to 11%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

In the chart below, you can see how the company has grown earnings, and revenue, 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 Zhengzhou Coal Mining Machinery Group's balance sheet strength, before getting too excited.

Are Zhengzhou Coal Mining Machinery Group Insiders Aligned With All Shareholders?

I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Zhengzhou Coal Mining Machinery Group insiders have a significant amount of capital invested in the stock. Given insiders own a small fortune of shares, currently valued at CN¥522m, they have plenty of motivation to push the business to succeed. That's certainly enough to make me think that management will be very focussed on long term growth.

Should You Add Zhengzhou Coal Mining Machinery Group To Your Watchlist?

Zhengzhou Coal Mining Machinery Group's earnings per share have taken off like a rocket aimed right at the moon. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So to my mind Zhengzhou Coal Mining Machinery Group is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. Still, you should learn about the 4 warning signs we've spotted with Zhengzhou Coal Mining Machinery Group .

Although Zhengzhou Coal Mining Machinery Group 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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