Here's Why We Think NagaCorp (HKG:3918) Is Well Worth Watching

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in NagaCorp (HKG:3918). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide NagaCorp with the means to add long-term value to shareholders.

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How Fast Is NagaCorp Growing?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Recognition must be given to the that NagaCorp has grown EPS by 38% per year, over the last three years. Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. The music to the ears of NagaCorp shareholders is that EBIT margins have grown from 30% to 44% in the last 12 months and revenues are on an upwards trend as well. That's great to see, on both counts.

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

Check out our latest analysis for NagaCorp

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for NagaCorp's future profits.

Are NagaCorp Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

One gleaming positive for NagaCorp, in the last year, is that a certain insider has buying shares with ample enthusiasm. In other words, the company insider, Kin Sun Chan, acquired US$8.2m worth of shares over the previous 12 months at an average price of around US$2.89. It doesn't get much better than that, in terms of large investments from insiders.

The good news, alongside the insider buying, for NagaCorp bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$1.6b. This suggests that leadership will be very mindful of shareholders' interests when making decisions!

Should You Add NagaCorp To Your Watchlist?

NagaCorp's earnings per share have been soaring, with growth rates sky high. The icing on the cake is that insiders own a large chunk of the company and one has even been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe NagaCorp deserves timely attention. What about risks? Every company has them, and we've spotted 1 warning sign for NagaCorp you should know about.

Keen growth investors love to see insider activity. Thankfully, NagaCorp isn't the only one. You can see a a curated list of Hong Kong companies which have exhibited consistent growth accompanied by high insider ownership.

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.