Do China Wan Tong Yuan (Holdings)'s (HKG:6966) Earnings Warrant Your Attention?

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. 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.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like China Wan Tong Yuan (Holdings) (HKG:6966). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

See our latest analysis for China Wan Tong Yuan (Holdings)

How Fast Is China Wan Tong Yuan (Holdings) Growing?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. As a tree reaches steadily for the sky, China Wan Tong Yuan (Holdings)'s EPS has grown 18% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

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. China Wan Tong Yuan (Holdings) shareholders can take confidence from the fact that EBIT margins are up from 34% to 50%, and revenue is growing. 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.

China Wan Tong Yuan (Holdings) isn't a huge company, given its market capitalization of HK$435m. That makes it extra important to check on its balance sheet strength.

Are China Wan Tong Yuan (Holdings) Insiders Aligned With All Shareholders?

Personally, I like to see high insider ownership of a company, since it suggests that it will be managed in the interests of shareholders. So we're pleased to report that China Wan Tong Yuan (Holdings) insiders own a meaningful share of the business. Indeed, with a collective holding of 78%, company insiders are in control and have plenty of capital behind the venture. This makes me think they will be incentivised to plan for the long term - something I like to see. In terms of absolute value, insiders have CN¥341m invested in the business, using the current share price. That should be more than enough to keep them focussed on creating shareholder value!

Does China Wan Tong Yuan (Holdings) Deserve A Spot On Your Watchlist?

You can't deny that China Wan Tong Yuan (Holdings) has grown its earnings per share at a very impressive rate. That's attractive. Further, the high level of insider ownership impresses me, and suggests that I'm not the only one who appreciates the EPS growth. Fast growth and confident insiders should be enough to warrant further research. So the answer is that I do think this is a good stock to follow along with. However, before you get too excited we've discovered 3 warning signs for China Wan Tong Yuan (Holdings) that you should be aware of.

Although China Wan Tong Yuan (Holdings) certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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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