Here's Why We Think Raymond Industrial (HKG:229) Is Well Worth Watching

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. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

So if you're like me, you might be more interested in profitable, growing companies, like Raymond Industrial (HKG:229). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. 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.

See our latest analysis for Raymond Industrial

How Quickly Is Raymond Industrial Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Impressively, Raymond Industrial has grown EPS by 22% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. The good news is that Raymond Industrial is growing revenues, and EBIT margins improved by 3.7 percentage points to 6.0%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

Since Raymond Industrial is no giant, with a market capitalization of HK$591m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Raymond Industrial Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

One positive for Raymond Industrial, is that company insiders paid HK$195k for shares in the last year. While this isn't much, we also note an absence of sales. It is also worth noting that it was Deputy Executive Chairman & GM Man Hin Wong who made the biggest single purchase, worth HK$110k, paying HK$1.10 per share.

On top of the insider buying, we can also see that Raymond Industrial insiders own a large chunk of the company. Actually, with 45% of the company to their names, insiders are profoundly invested in the business. I'm always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. With that sort of holding, insiders have about HK$266m riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!

Is Raymond Industrial Worth Keeping An Eye On?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Raymond Industrial's strong EPS growth. On top of that, insiders own a significant stake in the company and have been buying more shares. So I do think this is one stock worth watching. Still, you should learn about the 1 warning sign we've spotted with Raymond Industrial .

As a growth investor I do like to see insider buying. But Raymond Industrial isn't the only one. You can see a a free list of them here.

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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