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

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Hong Kong Exchanges and Clearing (HKG:388). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

Check out our latest analysis for Hong Kong Exchanges and Clearing

How Fast Is Hong Kong Exchanges and Clearing 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). That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, Hong Kong Exchanges and Clearing has grown EPS by 12% per year. That's a good rate of growth, if it can be sustained.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). 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. The good news is that Hong Kong Exchanges and Clearing is growing revenues, and EBIT margins improved by 3.9 percentage points to 73%, over the last year. 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. Click on the chart to see the exact numbers.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Hong Kong Exchanges and Clearing EPS 100% free.

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

Since Hong Kong Exchanges and Clearing has a market capitalization of HK$613b, 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$331m 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. That combination appeals to me, for one. So yes, I do think the stock is worth keeping an eye on. 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.

Although Hong Kong Exchanges and Clearing 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. 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.
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