Here's Why We Think Ausnutria Dairy (HKG:1717) 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.

So if you're like me, you might be more interested in profitable, growing companies, like Ausnutria Dairy (HKG:1717). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

View our latest analysis for Ausnutria Dairy

How Quickly Is Ausnutria Dairy Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Ausnutria Dairy has managed to grow EPS by 25% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

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. On the one hand, Ausnutria Dairy'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.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Ausnutria Dairy's forecast profits?

Are Ausnutria Dairy Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

One gleaming positive for Ausnutria Dairy, in the last year, is that a certain insider has buying shares with ample enthusiasm. Specifically, the Executive Director, Siu Hung Ng, accumulated CN¥15m worth of shares around CN¥15.10. It doesn't get much better than that, in terms of large investments from insiders.

On top of the insider buying, it's good to see that Ausnutria Dairy insiders have a valuable investment in the business. Indeed, they have a glittering mountain of wealth invested in it, currently valued at CN¥2.8b. Coming in at 15% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. So it might be my imagination, but I do sense the glimmer of an opportunity.

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. The cherry on top is that the CEO, Bart van der Meer is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between CN¥13b and CN¥41b, like Ausnutria Dairy, the median CEO pay is around CN¥4.6m.

Ausnutria Dairy offered total compensation worth CN¥2.3m to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. 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.

Is Ausnutria Dairy Worth Keeping An Eye On?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Ausnutria Dairy's strong EPS growth. The cranberry sauce on the turkey is that insiders own a bunch of shares, and one has been buying more. So it's fair to say I think this stock may well deserve a spot on your watchlist. Before you take the next step you should know about the 2 warning signs for Ausnutria Dairy that we have uncovered.

As a growth investor I do like to see insider buying. But Ausnutria Dairy isn't the only one. You can see a 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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