Should You Be Adding SY Holdings Group (HKG:6069) To Your Watchlist Today?

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.

So if you're like me, you might be more interested in profitable, growing companies, like SY Holdings Group (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. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

See our latest analysis for SY Holdings Group

How Quickly Is SY Holdings Group Increasing Earnings Per Share?

As one of my mentors once told me, share price follows earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. SY Holdings Group managed to grow EPS by 16% per year, over three years. That's a pretty good rate, if the company can sustain it.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. I note that SY Holdings Group's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Unfortunately, revenue is down and so are margins. That will not make it easy to grow profits, to say the least.

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 SY Holdings Group EPS 100% free.

Are SY Holdings Group Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

It's a pleasure to note that insiders spent CN¥25m buying SY Holdings Group shares, over the last year, without reporting any share sales whatsoever. And so I find myself almost expectant, and certainly hopeful, that this large outlay signals prescient optimism for the business. It is also worth noting that it was Chairman Chi Fung Tung who made the biggest single purchase, worth HK$4.0m, paying HK$6.50 per share.

And the insider buying isn't the only sign of alignment between shareholders and the board, since SY Holdings Group insiders own more than a third of the company. Indeed, with a collective holding of 56%, company insiders are in control and have plenty of capital behind the venture. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. At the current share price, that insider holding is worth a whopping CN¥3.6b. Now that's what I call some serious skin in the game!

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Chi Fung Tung, is paid less than the median for similar sized companies. I discovered that the median total compensation for the CEOs of companies like SY Holdings Group with market caps between CN¥2.6b and CN¥11b is about CN¥3.1m.

The SY Holdings Group CEO received CN¥2.7m in compensation for the year ending . That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.

Does SY Holdings Group Deserve A Spot On Your Watchlist?

One positive for SY Holdings Group is that it is growing EPS. That's nice to see. On top of that, we've seen insiders buying shares even though they already own plenty. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. However, before you get too excited we've discovered 4 warning signs for SY Holdings Group (1 is potentially serious!) that you should be aware of.

The good news is that SY Holdings Group is not the only growth stock with insider buying. Here's a list of them... 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. 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.