Do Energy International Investments Holdings' (HKG:353) Earnings Warrant Your Attention?

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 currently lacks a track record of revenue and profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like Energy International Investments Holdings (HKG:353), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Energy International Investments Holdings with the means to add long-term value to shareholders.

See our latest analysis for Energy International Investments Holdings

Energy International Investments Holdings' Improving Profits

Strong earnings per share (EPS) results are an indicator of a company achieving solid profits, which investors look upon favourably and so the share price tends to reflect great EPS performance. So for many budding investors, improving EPS is considered a good sign. It is awe-striking that Energy International Investments Holdings' EPS went from HK$0.018 to HK$0.12 in just one year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Energy International Investments Holdings' EBIT margins have actually improved by 11.2 percentage points in the last year, to reach 32%, but, on the flip side, revenue was down 30%. While not disastrous, these figures could be better.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

Energy International Investments Holdings isn't a huge company, given its market capitalisation of HK$533m. That makes it extra important to check on its balance sheet strength.

Are Energy International Investments Holdings Insiders Aligned With All Shareholders?

It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. Shareholders will be pleased by the fact that insiders own Energy International Investments Holdings shares worth a considerable sum. Indeed, they hold HK$159m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. As a percentage, this totals to 30% of the shares on issue for the business, an appreciable amount considering the market cap.

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. A brief analysis of the CEO compensation suggests they are. For companies with market capitalisations under HK$1.6b, like Energy International Investments Holdings, the median CEO pay is around HK$1.8m.

Energy International Investments Holdings' CEO took home a total compensation package worth HK$1.5m in the year leading up to March 2023. That is actually below the median for CEO's of similarly sized companies. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of good governance, more generally.

Should You Add Energy International Investments Holdings To Your Watchlist?

Energy International Investments Holdings' earnings have taken off in quite an impressive fashion. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The sharp increase in earnings could signal good business momentum. Big growth can make big winners, so the writing on the wall tells us that Energy International Investments Holdings is worth considering carefully. Before you take the next step you should know about the 3 warning signs for Energy International Investments Holdings (1 is a bit concerning!) that we have uncovered.

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.