Should You Be Adding Qeeka Home (Cayman) (HKG:1739) To Your Watchlist Today?

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. 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.

So if you're like me, you might be more interested in profitable, growing companies, like Qeeka Home (Cayman) (HKG:1739). 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 Qeeka Home (Cayman)

Qeeka Home (Cayman)'s Improving Profits

Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So EPS growth can certainly encourage an investor to take note of a stock. Like a firecracker arcing through the night sky, Qeeka Home (Cayman)'s EPS shot from CN¥0.011 to CN¥0.026, over the last year. Year on year growth of 127% is certainly a sight to behold.

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. Unfortunately, revenue is down and so are margins. That will not make it easy to grow profits, to say the least.

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

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Qeeka Home (Cayman)'s balance sheet strength, before getting too excited.

Are Qeeka Home (Cayman) Insiders Aligned With All Shareholders?

I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. As a result, I'm encouraged by the fact that insiders own Qeeka Home (Cayman) shares worth a considerable sum. With a whopping CN¥732m worth of shares as a group, insiders have plenty riding on the company's success. That holding amounts to 27% of the stock on issue, thus making insiders influential, and aligned, owners of the business.

Does Qeeka Home (Cayman) Deserve A Spot On Your Watchlist?

Qeeka Home (Cayman)'s earnings have taken off like any random crypto-currency did, back in 2017. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So yes, on this short analysis I do think it's worth considering Qeeka Home (Cayman) for a spot on your watchlist. However, before you get too excited we've discovered 1 warning sign for Qeeka Home (Cayman) that you should be aware of.

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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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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