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Does Tianli Education International Holdings (HKG:1773) Deserve A Spot 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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Tianli Education International Holdings (HKG:1773). 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. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
See our latest analysis for Tianli Education International Holdings
How Fast Is Tianli Education International Holdings Growing?
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. It's no surprise, then, that I like to invest in companies with EPS growth. Impressively, Tianli Education International Holdings has grown EPS by 26% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.
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). On the one hand, Tianli Education International Holdings's EBIT margins fell over the last year, but on the other hand, revenue grew. So it seems the future my hold further growth, especially if EBIT margins can stabilize.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
While profitability drives the upside, prudent investors always check the balance sheet, too.
Are Tianli Education International Holdings Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. 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.
Even though there was some insider selling over the last year, that was outweighed by Chairman of the Board & CEO Shi Luo's huge outlay of CN¥728m, spent buying shares. We should note the average purchase price was around CN¥7.30. The quantum of that insider purchase is both rare and a sight to behold, not unlike an endangered Amur Leopard in the wild.
And the insider buying isn't the only sign of alignment between shareholders and the board, since Tianli Education International Holdings insiders own more than a third of the company. In fact, they own 41% of the shares, making insiders a very influential shareholder group. I'm always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. At the current share price, that insider holding is worth a whopping CN¥1.9b. Now that's what I call some serious skin in the game!
Should You Add Tianli Education International Holdings To Your Watchlist?
You can't deny that Tianli Education International Holdings has grown its earnings per share at a very impressive rate. That's attractive. The cranberry sauce on the turkey is that insiders own a bunch of shares, and one has been buying more. So it's fair to say I think this stock may well deserve a spot on your watchlist. Even so, be aware that Tianli Education International Holdings is showing 4 warning signs in our investment analysis , you should know about...
As a growth investor I do like to see insider buying. But Tianli Education International Holdings 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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Valuation is complex, but we're here to simplify it.
Discover if Tianli International Holdings might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
Access Free AnalysisThis 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.
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About SEHK:1773
Tianli International Holdings
An investment holding company, provides education management and diversified services in China.
Exceptional growth potential with proven track record.