Here's Why I Think CGN Mining (HKG:1164) Might Deserve Your Attention Today

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. 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.

In contrast to all that, I prefer to spend time on companies like CGN Mining (HKG:1164), 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.

Check out our latest analysis for CGN Mining

How Fast Is CGN Mining Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. CGN Mining managed to grow EPS by 15% per year, over three years. That's a pretty good rate, if the company can sustain it.

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). While revenue is looking a bit flat, the good news is EBIT margins improved by 3.7 percentage points to 7.0%, in the last twelve months. That's something to smile about.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

CGN Mining isn't a huge company, given its market capitalization of HK$2.1b. That makes it extra important to check on its balance sheet strength.

Are CGN Mining Insiders Aligned With All Shareholders?

As a general rule, I think it worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. For companies with market capitalizations between HK$775m and HK$3.1b, like CGN Mining, the median CEO pay is around HK$2.3m.

The CGN Mining CEO received total compensation of just HK$950k in the year to . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. 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. I'd also argue reasonable pay levels attest to good decision making more generally.

Does CGN Mining Deserve A Spot On Your Watchlist?

One positive for CGN Mining is that it is growing EPS. That's nice to see. Not only that, but the CEO is paid quite reasonably, which makes me feel more trusting of the board of directors. So all in all I think it's worth at least considering for your watchlist. We don't want to rain on the parade too much, but we did also find 4 warning signs for CGN Mining (3 are a bit concerning!) that you need to be mindful of.

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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