Here's Why Leoch International Technology (HKG:842) Has Caught The Eye Of Investors

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

In contrast to all that, many investors prefer to focus on companies like Leoch International Technology (HKG:842), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

View our latest analysis for Leoch International Technology

Leoch International Technology's Improving Profits

Strong earnings per share (EPS) results are an indicator of a company achieving solid profits, which investors look upon favourably and so the share price tends to reflect great EPS performance. So for many budding investors, improving EPS is considered a good sign. It is awe-striking that Leoch International Technology's EPS went from CN¥0.14 to CN¥0.42 in just one year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future.

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. The good news is that Leoch International Technology is growing revenues, and EBIT margins improved by 2.4 percentage points to 4.7%, over the last year. That's great to see, on both counts.

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.

Since Leoch International Technology is no giant, with a market capitalisation of HK$1.6b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Leoch International Technology Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Any way you look at it Leoch International Technology shareholders can gain quiet confidence from the fact that insiders shelled out CN¥6.2m to buy stock, over the last year. When you contrast that with the complete lack of sales, it's easy for shareholders to be brimming with joyful expectancy. We also note that it was the Founder & Chairman, Li Dong, who made the biggest single acquisition, paying HK$1.8m for shares at about HK$1.79 each.

These recent buys aren't the only encouraging sign for shareholders, as a look at the shareholder registry for Leoch International Technology will reveal that insiders own a significant piece of the pie. In fact, they own 74% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. With that sort of holding, insiders have about CN¥1.2b riding on the stock, at current prices. That's nothing to sneeze at!

Is Leoch International Technology Worth Keeping An Eye On?

Leoch International Technology's earnings have taken off in quite an impressive fashion. What's more, insiders own a significant stake in the company and have been buying more shares. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Leoch International Technology belongs near the top of your watchlist. We should say that we've discovered 2 warning signs for Leoch International Technology (1 is a bit unpleasant!) that you should be aware of before investing here.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Leoch International Technology, you'll probably love this free list of growing companies that insiders are buying.

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.