Here's Why We Think Tongcheng Travel Holdings (HKG:780) Might Deserve Your Attention Today

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Tongcheng Travel Holdings (HKG:780). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

See our latest analysis for Tongcheng Travel Holdings

How Fast Is Tongcheng Travel 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) outcomes. That means EPS growth is considered a real positive by most successful long-term investors. Impressively, Tongcheng Travel Holdings has grown EPS by 33% per year, compound, in the last three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

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. Tongcheng Travel Holdings maintained stable EBIT margins over the last year, all while growing revenue 58% to CN¥16b. That's a real positive.

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.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Tongcheng Travel Holdings' forecast profits?

Are Tongcheng Travel Holdings Insiders Aligned With All Shareholders?

Owing to the size of Tongcheng Travel Holdings, we wouldn't expect insiders to hold a significant proportion of the company. But we are reassured by the fact they have invested in the company. Given insiders own a significant chunk of shares, currently valued at CN¥615m, they have plenty of motivation to push the business to succeed. This would indicate that the goals of shareholders and management are one and the same.

Is Tongcheng Travel Holdings Worth Keeping An Eye On?

You can't deny that Tongcheng Travel Holdings has grown its earnings per share at a very impressive rate. That's attractive. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in Tongcheng Travel Holdings' continuing strength. Fast growth and confident insiders should be enough to warrant further research, so it would seem that it's a good stock to follow. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Tongcheng Travel Holdings is trading on a high P/E or a low P/E, relative to its industry.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of Hong Kong companies which have demonstrated growth backed by significant insider holdings.

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.