With EPS Growth And More, China New Higher Education Group (HKG:2001) Is Interesting

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 as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like China New Higher Education Group (HKG:2001). 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 New Higher Education Group

China New Higher Education Group's Earnings Per Share Are 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. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. As a tree reaches steadily for the sky, China New Higher Education Group's EPS has grown 33% each year, compound, 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. While we note China New Higher Education Group's EBIT margins were flat over the last year, revenue grew by a solid 51% to CN¥1.2b. That's a real positive.

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 we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for China New Higher Education Group?

Are China New Higher Education Group Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

The good news is that China New Higher Education Group insiders spent a whopping CN¥8.6m on stock in just one year, and I didn't see any selling. And so I find myself almost expectant, and certainly hopeful, that this large outlay signals prescient optimism for the business. We also note that it was the Chairman, Xiaoxuan Li, who made the biggest single acquisition, paying HK$3.6m for shares at about HK$3.46 each.

Along with the insider buying, another encouraging sign for China New Higher Education Group is that insiders, as a group, have a considerable shareholding. Indeed, they have a glittering mountain of wealth invested in it, currently valued at CN¥2.5b. That equates to 33% of the company, making insiders powerful and aligned with other shareholders. Very encouraging.

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. The cherry on top is that the CEO, Shuai Zhao is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between CN¥2.6b and CN¥11b, like China New Higher Education Group, the median CEO pay is around CN¥3.0m.

The China New Higher Education Group CEO received total compensation of just CN¥1.5m in the year to . That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. 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. It can also be a sign of good governance, more generally.

Is China New Higher Education Group Worth Keeping An Eye On?

For growth investors like me, China New Higher Education Group's raw rate of earnings growth is a beacon in the night. Not only that, but we can see that insiders both own a lot of, and are buying more, shares in the company. So I do think this is one stock worth watching. We should say that we've discovered 3 warning signs for China New Higher Education Group that you should be aware of before investing here.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of China New Higher Education Group, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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