Here's Why Momentum Financial Holdings (HKG:1152) Has Caught The Eye Of Investors

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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like Momentum Financial Holdings (HKG:1152), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Momentum Financial Holdings with the means to add long-term value to shareholders.

See our latest analysis for Momentum Financial Holdings

How Quickly Is Momentum Financial Holdings Increasing Earnings Per Share?

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 makes EPS growth an attractive quality for any company. To the delight of shareholders, Momentum Financial Holdings has achieved impressive annual EPS growth of 56%, compound, 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 good news is that Momentum Financial Holdings is growing revenues, and EBIT margins improved by 3.7 percentage points to 5.9%, over the last year. Ticking those two boxes is a good sign of growth, in our book.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

Since Momentum Financial Holdings is no giant, with a market capitalisation of HK$77m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Momentum Financial Holdings Insiders Aligned With All Shareholders?

Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price. So as you can imagine, the fact that Momentum Financial Holdings insiders own a significant number of shares certainly is appealing. To be exact, company insiders hold 77% of the company, so their decisions have a significant impact on their investments. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. Although, with Momentum Financial Holdings being valued at HK$77m, this is a small company we're talking about. That means insiders only have HK$59m worth of shares, despite the large proportional holding. That might not be a huge sum but it should be enough to keep insiders motivated!

Is Momentum Financial Holdings Worth Keeping An Eye On?

Momentum Financial Holdings' earnings per share have been soaring, with growth rates sky high. That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So at the surface level, Momentum Financial Holdings is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. Still, you should learn about the 2 warning signs we've spotted with Momentum Financial Holdings.

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 recent insider purchases.

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.