Here's Why We Think Leoch International Technology (HKG:842) Is Well Worth Watching

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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 can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Leoch International Technology (HKG:842). 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.

See our latest analysis for Leoch International Technology

Leoch International Technology'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 you'd expect share price to follow earnings per share (EPS) outcomes eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Recognition must be given to the that Leoch International Technology has grown EPS by 49% per year, over the last three years. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors.

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. EBIT margins for Leoch International Technology remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 14% to CN¥13b. That's a real positive.

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.

Leoch International Technology isn't a huge company, given its market capitalisation of HK$2.1b. That makes it extra important to check on its balance sheet strength.

Are Leoch International Technology Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. Because often, the purchase of stock is a sign that the buyer views it as undervalued. 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¥5.9m 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.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Leoch International Technology insiders own more than a third of the company. To be exact, company insiders hold 75% of the company, so their decisions have a significant impact on their investments. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. To give you an idea, the value of insiders' holdings in the business are valued at CN¥1.6b at the current share price. So there's plenty there to keep them focused!

Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because on our analysis the CEO, Haiyan Yin, is paid less than the median for similar sized companies. The median total compensation for CEOs of companies similar in size to Leoch International Technology, with market caps between CN¥714m and CN¥2.9b, is around CN¥2.2m.

Leoch International Technology's CEO took home a total compensation package of CN¥930k in the year prior to December 2022. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.

Should You Add Leoch International Technology To Your Watchlist?

Leoch International Technology's earnings per share growth have been climbing higher at an appreciable rate. Just as heartening; insiders both own and are buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Leoch International Technology deserves timely attention. What about risks? Every company has them, and we've spotted 2 warning signs for Leoch International Technology you should know about.

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.