Here's Why I Think Yantai North Andre Juice (HKG:2218) Is An Interesting Stock

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 completely lacks a track record of revenue and profit. 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.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Yantai North Andre Juice (HKG:2218). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. 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.

Check out our latest analysis for Yantai North Andre Juice

How Quickly Is Yantai North Andre Juice 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). That means EPS growth is considered a real positive by most successful long-term investors. It certainly is nice to see that Yantai North Andre Juice has managed to grow EPS by 20% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

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 we note Yantai North Andre Juice's EBIT margins were flat over the last year, revenue grew by a solid 18% to CN¥957m. That's a real positive.

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

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Yantai North Andre Juice's balance sheet strength, before getting too excited.

Are Yantai North Andre Juice Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

One gleaming positive for Yantai North Andre Juice, in the last year, is that a certain insider has buying shares with ample enthusiasm. Indeed, Jun Liu has accumulated shares over the last year, paying a total of CN¥15m at an average price of about CN¥0.66. Big insider buys like that are almost as rare as an ocean free of single use plastic waste.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Yantai North Andre Juice insiders own more than a third of the company. Actually, with 35% of the company to their names, insiders are profoundly invested in the business. I'm reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. And their holding is extremely valuable at the current share price, totalling CN¥3.1b. That means they have plenty of their own capital riding on the performance of the business!

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. That's because on our analysis the CEO, Hui Zhang, is paid less than the median for similar sized companies. For companies with market capitalizations between CN¥2.6b and CN¥10b, like Yantai North Andre Juice, the median CEO pay is around CN¥3.1m.

The Yantai North Andre Juice CEO received total compensation of just CN¥628k in the year to . That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. 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 a culture of integrity, in a broader sense.

Should You Add Yantai North Andre Juice To Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Yantai North Andre Juice'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 I do think this is one stock worth watching. We should say that we've discovered 1 warning sign for Yantai North Andre Juice that you should be aware of before investing here.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Yantai North Andre Juice, you'll probably love this free list of growing companies that insiders are buying.

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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