Here's Why We Think Sheng Ye Capital (HKG:6069) Is Well Worth Watching

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Sheng Ye Capital (HKG:6069). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. 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 Sheng Ye Capital

How Fast Is Sheng Ye Capital Growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Who among us would not applaud Sheng Ye Capital's stratospheric annual EPS growth of 39%, compound, over the last three years? Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.

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 Sheng Ye Capital's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. On the one hand, Sheng Ye Capital's EBIT margins fell over the last year, but on the other hand, revenue grew. So it seems the future my hold further growth, especially if EBIT margins can stabilize.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

Fortunately, we've got access to analyst forecasts of Sheng Ye Capital's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Sheng Ye Capital Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

The good news is that Sheng Ye Capital insiders spent a whopping CN¥22m on stock in just one year, and I didn't see any selling. And so I find myself almost expectant, and certainly hopeful, that this large outlay signals prescient optimism for the business. We also note that it was the Chairman, Chi Fung Tung, who made the biggest single acquisition, paying HK$4.0m for shares at about HK$6.50 each.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Sheng Ye Capital insiders own more than a third of the company. In fact, they own 60% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes me think they will be incentivised to plan for the long term - something I like to see. And their holding is extremely valuable at the current share price, totalling CN¥4.7b. Now that's what I call some serious skin in the game!

Should You Add Sheng Ye Capital To Your Watchlist?

Sheng Ye Capital's earnings per share have taken off like a rocket aimed right at the moon. Just as heartening; insiders both own and are buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Sheng Ye Capital deserves timely attention. However, before you get too excited we've discovered 3 warning signs for Sheng Ye Capital that you should be aware of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Sheng Ye Capital, you'll probably love this free list of growing companies that insiders are buying.

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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