Here's Why We Think Shangri-La Asia (HKG:69) Might Deserve Your Attention Today

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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Shangri-La Asia (HKG:69). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Shangri-La Asia with the means to add long-term value to shareholders.

Check out our latest analysis for Shangri-La Asia

Shangri-La Asia's Improving Profits

In the last three years Shangri-La Asia's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. As a result, we'll zoom in on growth over the last year, instead. Shangri-La Asia's EPS has risen over the last 12 months, growing from US$0.037 to US$0.041. That's a 13% gain; respectable growth in the broader scheme of things.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. The good news is that Shangri-La Asia is growing revenues, and EBIT margins improved by 3.2 percentage points to 9.0%, over the last year. Both of which are great metrics to check off for potential growth.

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Shangri-La Asia?

Are Shangri-La Asia Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

One gleaming positive for Shangri-La Asia, in the last year, is that a certain insider has buying shares with ample enthusiasm. In one big hit, Executive Chairman of the Board Hui Kwong Kuok paid HK$11m, for shares at an average price of HK$5.52 per share. It doesn't get much better than that, in terms of large investments from insiders.

Along with the insider buying, another encouraging sign for Shangri-La Asia is that insiders, as a group, have a considerable shareholding. Holding US$522m worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. This should keep them focused on creating long term value for shareholders.

Does Shangri-La Asia Deserve A Spot On Your Watchlist?

One important encouraging feature of Shangri-La Asia is that it is growing profits. In addition, insiders have been busy adding to their sizeable holdings in the company. These factors alone make the company an interesting prospect for your watchlist, as well as continuing research. Before you take the next step you should know about the 1 warning sign for Shangri-La Asia that we have uncovered.

The good news is that Shangri-La Asia is not the only stock with insider buying. Here's a list of small cap, undervalued companies in HK with insider buying in the last three months!

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.