Is Now The Time To Put Theme International Holdings (HKG:990) On Your Watchlist?

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

So if you're like me, you might be more interested in profitable, growing companies, like Theme International Holdings (HKG:990). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

View our latest analysis for Theme International Holdings

How Fast Is Theme International Holdings Growing Its Earnings Per Share?

In a capitalist society capital chases profits, and that means share prices tend rise with earnings per share (EPS). So like a ray of sunshine through a gap in the clouds, improving EPS is considered a good sign. You can imagine, then, that it almost knocked my socks off when I realized that Theme International Holdings grew its EPS from HK$0.015 to HK$0.07, in one short year. When you see earnings grow that quickly, it often means good things ahead for the company. Could this be a sign that the business has reached an inflection point?

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. While we note Theme International Holdings's EBIT margins were flat over the last year, revenue grew by a solid 59% to HK$26b. That's progress.

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.

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 Theme International Holdings's balance sheet strength, before getting too excited.

Are Theme International Holdings Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

One shining light for Theme International Holdings is the serious outlay one insider has made to buy shares, in the last year. Specifically, the , Bing Liu, accumulated HK$199m worth of shares around HK$0.75. Big insider buys like that are almost as rare as an ocean free of single use plastic waste.

On top of the insider buying, it's good to see that Theme International Holdings insiders have a valuable investment in the business. With a whopping HK$759m worth of shares as a group, insiders have plenty riding on the company's success. That's certainly enough to make me think that management will be very focussed on long term growth.

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. The cherry on top is that the CEO, Jiang Jiang is paid comparatively modestly to CEOs at similar sized companies. I discovered that the median total compensation for the CEOs of companies like Theme International Holdings with market caps between HK$7.8b and HK$25b is about HK$4.2m.

Theme International Holdings offered total compensation worth HK$2.4m to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.

Should You Add Theme International Holdings To Your Watchlist?

Theme International Holdings's earnings have taken off like any random crypto-currency did, back in 2017. The cherry on top is that insiders own a bunch of shares, and one has been buying more. Because of the potential that it has reached an inflection point, I'd suggest Theme International Holdings belongs on the top of your watchlist. It's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Theme International Holdings , and understanding these should be part of your investment process.

The good news is that Theme International Holdings is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.