Here's Why We Think Yue Yuen Industrial (Holdings) (HKG:551) 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 currently lacks a track record of revenue and 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. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Yue Yuen Industrial (Holdings) (HKG:551). 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 Yue Yuen Industrial (Holdings)

How Fast Is Yue Yuen Industrial (Holdings) Growing Its Earnings Per Share?

In the last three years Yue Yuen Industrial (Holdings)'s earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. As a result, we'll zoom in on growth over the last year, instead. Yue Yuen Industrial (Holdings)'s EPS shot up from US$0.16 to US$0.20; a result that's bound to keep shareholders happy. That's a fantastic gain of 29%.

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. Yue Yuen Industrial (Holdings)'s EBIT margins are flat but, worryingly, its revenue is actually down. While this may raise concerns, investors should investigate the reasoning behind this.

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.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Yue Yuen Industrial (Holdings)'s future EPS 100% free.

Are Yue Yuen Industrial (Holdings) Insiders Aligned With All Shareholders?

As a general rule, it's worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. Our analysis has discovered that the median total compensation for the CEOs of companies like Yue Yuen Industrial (Holdings) with market caps between US$2.0b and US$6.4b is about US$490k.

The Yue Yuen Industrial (Holdings) CEO received total compensation of only US$347k in the year to December 2023. This could be considered a token amount, and indicates that the company does not need to use payment to motivate the CEO - that is often a good sign. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Does Yue Yuen Industrial (Holdings) Deserve A Spot On Your Watchlist?

You can't deny that Yue Yuen Industrial (Holdings) has grown its earnings per share at a very impressive rate. That's attractive. Strong EPS growth is a great look for the company and reasonable CEO compensation sweetens the deal for investors ass it alludes to management being conscious of frivolous spending. So this stock is well worth an addition to your watchlist as it has the potential to provide great value to shareholders. Still, you should learn about the 2 warning signs we've spotted with Yue Yuen Industrial (Holdings).

Although Yue Yuen Industrial (Holdings) certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of Hong Kong companies that not only boast of strong growth but have strong insider backing.

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.