Should You Be Adding China Coal Energy (HKG:1898) To Your Watchlist Today?

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in China Coal Energy (HKG:1898). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

Check out our latest analysis for China Coal Energy

China Coal Energy's Improving Profits

China Coal Energy has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. Thus, it makes sense to focus on more recent growth rates, instead. China Coal Energy's EPS skyrocketed from CN¥1.04 to CN¥1.56, in just one year; a result that's bound to bring a smile to shareholders. That's a commendable gain of 50%.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. China Coal Energy shareholders can take confidence from the fact that EBIT margins are up from 12% to 18%, and revenue is growing. 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.

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

Are China Coal Energy Insiders Aligned With All Shareholders?

Since China Coal Energy has a market capitalisation of HK$114b, we wouldn't expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. Indeed, they hold CN¥275m worth of its stock. This considerable investment should help drive long-term value in the business. Even though that's only about 0.2% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Is China Coal Energy Worth Keeping An Eye On?

If you believe that share price follows earnings per share you should definitely be delving further into China Coal Energy's strong EPS growth. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in China Coal Energy's continuing strength. On the balance of its merits, solid EPS growth and company insiders who are aligned with the shareholders would indicate a business that is worthy of further research. However, before you get too excited we've discovered 2 warning signs for China Coal Energy (1 is a bit concerning!) that you should be aware of.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a free list of them here.

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.