We Ran A Stock Scan For Earnings Growth And Leoch International Technology (HKG:842) Passed With Ease

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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Leoch International Technology (HKG:842). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Leoch International Technology with the means to add long-term value to shareholders.

See our latest analysis for Leoch International Technology

How Quickly Is Leoch International Technology Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, Leoch International Technology has grown EPS by 15% per year. That's a pretty good rate, if the company can sustain it.

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. While we note Leoch International Technology achieved similar EBIT margins to last year, revenue grew by a solid 10% to CN¥12b. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

Since Leoch International Technology is no giant, with a market capitalisation of HK$1.9b, you should definitely check its cash and debt before getting too excited about its prospects.

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.

Belief in the company remains high for insiders as there hasn't been a single share sold by the management or company board members. But the real excitement comes from the CN¥1.2m that Founder & Chairman Li Dong spent buying shares (at an average price of about CN¥0.58). Purchases like this clue us in to the to the faith management has in the business' future.

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. Indeed, with a collective holding of 74%, company insiders are in control and have plenty of capital behind the venture. 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. With that sort of holding, insiders have about CN¥1.4b riding on the stock, at current prices. 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 Leoch International Technology's CEO, Haiyan Yin, is paid at a relatively modest level when compared to other CEOs for companies of this size. The median total compensation for CEOs of companies similar in size to Leoch International Technology, with market caps between CN¥690m and CN¥2.8b, is around CN¥2.0m.

Leoch International Technology's CEO took home a total compensation package of CN¥927k in the year prior to December 2021. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Does Leoch International Technology Deserve A Spot On Your Watchlist?

One important encouraging feature of Leoch International Technology is that it is growing profits. Better yet, insiders are significant shareholders, and have been buying more shares. That makes the company a prime candidate for your watchlist - and arguably a research priority. Still, you should learn about the 1 warning sign we've spotted with Leoch International Technology.

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.