Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. 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.
In contrast to all that, I prefer to spend time on companies like Ka Shui International Holdings (HKG:822), which has not only revenues, but also profits. While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
Ka Shui International Holdings's Earnings Per Share Are Growing.
As one of my mentors once told me, share price follows earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. As a tree reaches steadily for the sky, Ka Shui International Holdings's EPS has grown 17% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.
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. Ka Shui International Holdings's EBIT margins have actually improved by 2.9 percentage points in the last year, to reach 11%, but, on the flip side, revenue was down 14%. That's not ideal.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
Ka Shui International Holdings isn't a huge company, given its market capitalization of HK$518m. That makes it extra important to check on its balance sheet strength.
Are Ka Shui International Holdings Insiders Aligned With All Shareholders?
Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So as you can imagine, the fact that Ka Shui International Holdings insiders own a significant number of shares certainly appeals to me. Indeed, with a collective holding of 66%, company insiders are in control and have plenty of capital behind the venture. This makes me think they will be incentivised to plan for the long term - something I like to see. With that sort of holding, insiders have about HK$342m riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!
Should You Add Ka Shui International Holdings To Your Watchlist?
For growth investors like me, Ka Shui International Holdings's raw rate of earnings growth is a beacon in the night. I think that EPS growth is something to boast of, and it doesn't surprise me that insiders are holding on to a considerable chunk of shares. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. Before you take the next step you should know about the 4 warning signs for Ka Shui International Holdings that we have uncovered.
Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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