With EPS Growth And More, Man Wah Holdings (HKG:1999) Makes An Interesting Case

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 currently lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

In contrast to all that, many investors prefer to focus on companies like Man Wah Holdings (HKG:1999), which has not only revenues, but also profits. Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

See our latest analysis for Man Wah Holdings

How Fast Is Man Wah Holdings Growing?

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. It certainly is nice to see that Man Wah Holdings has managed to grow EPS by 17% per year over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. On the one hand, Man Wah Holdings' EBIT margins fell over the last year, but on the other hand, revenue grew. So it seems the future may hold further growth, especially if EBIT margins can remain steady.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

Fortunately, we've got access to analyst forecasts of Man Wah Holdings' future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Man Wah Holdings 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

The good news for Man Wah Holdings is that one insider has illustrated their belief in the company's future with a huge purchase of shares in the last 12 months. In one fell swoop, Chairman Man Li Wong, spent HK$33m, at a price of HK$6.67 per share. Seeing such high conviction in the company is a huge positive for shareholders and should instil confidence in their mission.

These recent buys aren't the only encouraging sign for shareholders, as a look at the shareholder registry for Man Wah Holdings will reveal that insiders own a significant piece of the pie. To be exact, company insiders hold 61% 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. That level of investment from insiders is nothing to sneeze at.

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. That's because Man Wah Holdings' CEO, Man Li Wong, is paid at a relatively modest level when compared to other CEOs for companies of this size. Our analysis has discovered that the median total compensation for the CEOs of companies like Man Wah Holdings with market caps between HK$16b and HK$50b is about HK$4.0m.

Man Wah Holdings' CEO took home a total compensation package worth HK$2.2m in the year leading up to March 2022. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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. It can also be a sign of a culture of integrity, in a broader sense.

Is Man Wah Holdings Worth Keeping An Eye On?

For growth investors, Man Wah Holdings' raw rate of earnings growth is a beacon in the night. Better still, insiders own a large chunk of the company and one has even been buying more shares. Astute investors will want to keep this stock on watch. Before you take the next step you should know about the 2 warning signs for Man Wah Holdings that we have uncovered.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Man Wah Holdings, 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.