Is Now The Time To Put Raymond Industrial (HKG:229) On Your Watchlist?

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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

In contrast to all that, I prefer to spend time on companies like Raymond Industrial (HKG:229), which has not only revenues, but also profits. 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. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for Raymond Industrial

Raymond Industrial's Earnings Per Share Are Growing.

As one of my mentors once told me, share price follows earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. We can see that in the last three years Raymond Industrial grew its EPS by 13% per year. That's a good rate of growth, if it can be sustained.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). The good news is that Raymond Industrial is growing revenues, and EBIT margins improved by 2.7 percentage points to 5.3%, over the last year. That's great to see, on both counts.

In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.

Since Raymond Industrial is no giant, with a market capitalization of HK$554m, 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 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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

We haven't seen any insiders selling Raymond Industrial shares, in the last year. So it's definitely nice that David Webb bought HK$85k worth of shares at an average price of around HK$0.85.

On top of the insider buying, we can also see that Raymond Industrial insiders own a large chunk of the company. Actually, with 46% of the company to their names, insiders are profoundly invested in the business. I'm reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. In terms of absolute value, insiders have HK$254m invested in the business, using the current share price. That should be more than enough to keep them focussed on creating shareholder value!

Does Raymond Industrial Deserve A Spot On Your Watchlist?

One important encouraging feature of Raymond Industrial is that it is growing profits. 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. It is worth noting though that we have found 1 warning sign for Raymond Industrial that you need to take into consideration.

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