I Ran A Stock Scan For Earnings Growth And Hong Kong Exchanges and Clearing (HKG:388) Passed With Ease

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 as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

In contrast to all that, I prefer to spend time on companies like Hong Kong Exchanges and Clearing (HKG:388), which has not only revenues, but also profits. 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 Hong Kong Exchanges and Clearing

How Quickly Is Hong Kong Exchanges and Clearing Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. We can see that in the last three years Hong Kong Exchanges and Clearing grew its EPS by 16% per year. That's a pretty good rate, if the company can sustain it.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. I note that Hong Kong Exchanges and Clearing's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Hong Kong Exchanges and Clearing shareholders can take confidence from the fact that EBIT margins are up from 68% to 73%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Hong Kong Exchanges and Clearing's forecast profits?

Are Hong Kong Exchanges and Clearing Insiders Aligned With All Shareholders?

Since Hong Kong Exchanges and Clearing has a market capitalization of HK$581b, we wouldn't expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. To be specific, they have HK$314m worth of shares. That's a lot of money, and no small incentive to work hard. Despite being just 0.05% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Does Hong Kong Exchanges and Clearing Deserve A Spot On Your Watchlist?

As I already mentioned, Hong Kong Exchanges and Clearing is a growing business, which is what I like to see. Just as polish makes silverware pop, the high level of insider ownership enhances my enthusiasm for this growth. The combination sparks joy for me, so I'd consider keeping the company on a watchlist. Now, you could try to make up your mind on Hong Kong Exchanges and Clearing by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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. 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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