Should You Be Adding China Dongxiang (Group) (HKG:3818) To Your Watchlist Today?

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

In contrast to all that, I prefer to spend time on companies like China Dongxiang (Group) (HKG:3818), which has not only revenues, but also profits. Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for China Dongxiang (Group)

China Dongxiang (Group)'s Earnings Per Share Are Growing.

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That makes EPS growth an attractive quality for any company. Over the last three years, China Dongxiang (Group) has grown EPS by 12% per year. That's a pretty good rate, if the company can sustain it.

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. This approach makes China Dongxiang (Group) look pretty good, on balance; although revenue is flattish, EBIT margins improved from 32% to 56% in the last year. That's something to smile about.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

Fortunately, we've got access to analyst forecasts of China Dongxiang (Group)'s future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are China Dongxiang (Group) Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

We do note that, in the last year, insiders sold -CN¥16m worth of shares. But that's far less than the CN¥57m insiders spend purchasing stock. I find this encouraging because it suggests they are optimistic about the China Dongxiang (Group)'s future. We also note that it was the Founder & Executive Chairman, Yihong Chen, who made the biggest single acquisition, paying HK$9.5m for shares at about HK$0.72 each.

And the insider buying isn't the only sign of alignment between shareholders and the board, since China Dongxiang (Group) insiders own more than a third of the company. In fact, they own 46% of the shares, making insiders a very influential shareholder group. I'm reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. At the current share price, that insider holding is worth a whopping CN¥2.2b. Now that's what I call some serious skin in the game!

Should You Add China Dongxiang (Group) To Your Watchlist?

As I already mentioned, China Dongxiang (Group) 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. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. You still need to take note of risks, for example - China Dongxiang (Group) has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

As a growth investor I do like to see insider buying. But China Dongxiang (Group) 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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