Should You Be Adding Man Wah Holdings (HKG:1999) To Your Watchlist Today?

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

So if you're like me, you might be more interested in profitable, growing companies, like Man Wah Holdings (HKG:1999). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. 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.

Check out our latest analysis for Man Wah Holdings

Man Wah Holdings's Earnings Per Share Are Growing.

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. It's no surprise, then, that I like to invest in companies with EPS growth. We can see that in the last three years Man Wah Holdings grew its EPS by 15% per year. That growth rate is fairly good, assuming the company can keep it up.

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. On the one hand, Man Wah Holdings's EBIT margins fell over the last year, but on the other hand, revenue grew. So it seems the future my hold further growth, especially if EBIT margins can stabilize.

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 we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Man Wah Holdings?

Are Man Wah Holdings Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. 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 Man Wah Holdings is the serious outlay one insider has made to buy shares, in the last year. In one fell swoop, Chairman Man Li Wong, spent HK$17m, at a price of HK$8.23 per share. Big insider buys like that are almost as rare as an ocean free of single use plastic waste.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Man Wah Holdings insiders own more than a third of the company. In fact, they own 61% 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. At the current share price, that insider holding is worth a whopping HK$16b. That means they have plenty of their own capital riding on the performance of the business!

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, Man Li Wong is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between HK$16b and HK$50b, like Man Wah Holdings, the median CEO pay is around HK$4.9m.

The Man Wah Holdings CEO received total compensation of just HK$1.7m in the year to . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. I'd also argue reasonable pay levels attest to good decision making more generally.

Does Man Wah Holdings Deserve A Spot On Your Watchlist?

As I already mentioned, Man Wah Holdings is a growing business, which is what I like to see. On top of that, we've seen insiders buying shares even though they already own plenty. That makes the company a prime candidate for my watchlist - and arguably a research priority. We should say that we've discovered 2 warning signs for Man Wah Holdings that you should be aware of before investing here.

The good news is that Man Wah 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.

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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.