With EPS Growth And More, Alpha Era International Holdings (HKG:8406) Is Interesting

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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Alpha Era International Holdings (HKG:8406). 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.

View our latest analysis for Alpha Era International Holdings

How Quickly Is Alpha Era International Holdings Increasing Earnings Per Share?

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. It certainly is nice to see that Alpha Era International Holdings has managed to grow EPS by 30% 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 smiling.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Alpha Era International Holdings maintained stable EBIT margins over the last year, all while growing revenue 17% to CN¥269m. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

Alpha Era International Holdings isn't a huge company, given its market capitalization of HK$107m. That makes it extra important to check on its balance sheet strength.

Are Alpha Era International Holdings Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So we're pleased to report that Alpha Era International Holdings insiders own a meaningful share of the business. Indeed, with a collective holding of 75%, company insiders are in control and have plenty of capital behind the venture. This makes me think they will be incentivised to plan for the long term - something I like to see. Valued at only HK$107m Alpha Era International Holdings is really small for a listed company. That means insiders only have CN¥80m worth of shares, despite the large proportional holding. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. A brief analysis of the CEO compensation suggests they are. I discovered that the median total compensation for the CEOs of companies like Alpha Era International Holdings with market caps under CN¥1.3b is about CN¥1.5m.

The Alpha Era International Holdings CEO received total compensation of just CN¥516k in the year to . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.

Is Alpha Era International Holdings Worth Keeping An Eye On?

You can't deny that Alpha Era International Holdings has grown its earnings per share at a very impressive rate. That's attractive. If that's not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. This may only be a fast rundown, but the takeaway for me is that Alpha Era International Holdings is worth keeping an eye on. Even so, be aware that Alpha Era International Holdings is showing 3 warning signs in our investment analysis , you should know about...

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access 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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