Does China Boqi Environmental (Holding) (HKG:2377) Deserve A Spot On Your Watchlist?

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

So if you're like me, you might be more interested in profitable, growing companies, like China Boqi Environmental (Holding) (HKG:2377). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

See our latest analysis for China Boqi Environmental (Holding)

China Boqi Environmental (Holding)'s Earnings Per Share Are Growing.

As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. Over the last three years, China Boqi Environmental (Holding) has grown EPS by 4.8% per year. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.

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. China Boqi Environmental (Holding)'s EBIT margins have actually improved by 2.8 percentage points in the last year, to reach 12%, but, on the flip side, revenue was down 10%. That falls short of ideal.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

China Boqi Environmental (Holding) isn't a huge company, given its market capitalization of HK$2.0b. That makes it extra important to check on its balance sheet strength.

Are China Boqi Environmental (Holding) Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. 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.

We do note that, in the last year, insiders sold -CN¥851k worth of shares. But that's far less than the CN¥35m insiders spend purchasing stock. I find this encouraging because it suggests they are optimistic about the China Boqi Environmental (Holding)'s future. We also note that it was the CEO & Chairman, Zhijun Zeng, who made the biggest single acquisition, paying HK$28m for shares at about HK$2.00 each.

And the insider buying isn't the only sign of alignment between shareholders and the board, since China Boqi Environmental (Holding) insiders own more than a third of the company. In fact, they own 55% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. To me 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¥1.1b riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. The cherry on top is that the CEO, Zhijun Zeng is paid comparatively modestly to CEOs at similar sized companies. I discovered that the median total compensation for the CEOs of companies like China Boqi Environmental (Holding) with market caps between CN¥646m and CN¥2.6b is about CN¥1.8m.

The China Boqi Environmental (Holding) CEO received total compensation of just CN¥888k in the year to . That looks like modest pay to me, 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 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.

Does China Boqi Environmental (Holding) Deserve A Spot On Your Watchlist?

One important encouraging feature of China Boqi Environmental (Holding) is that it is growing profits. Better yet, insiders are significant shareholders, and have been buying more shares. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. You should always think about risks though. Case in point, we've spotted 1 warning sign for China Boqi Environmental (Holding) you should be aware of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of China Boqi Environmental (Holding), 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. 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.
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