It’s only natural that many investors, especially those who are new to the game, prefer to buy shares in ‘sexy’ stocks with a good story, even if those businesses lose money. 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 contrast to all that, I prefer to spend time on companies like Tingyi (Cayman Islands) Holding (HKG:322), which has not only revenues, but also profits. Now, I’m not saying that the stock is necessarily undervalued today; but I can’t shake an appreciation for the profitability of the business itself. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
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How Fast Is Tingyi (Cayman Islands) Holding Growing?
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 makes EPS growth an attractive quality for any company. Over the last three years, Tingyi (Cayman Islands) Holding has grown EPS by 14% per year. That’s a good rate of growth, if it can be sustained.
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. While we note Tingyi (Cayman Islands) Holding’s EBIT margins were flat over the last year, revenue grew by a solid 2.9% to CN¥61b. That’s a real positive.
You can take a look at the company’s revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Tingyi (Cayman Islands) Holding EPS 100% free.
Are Tingyi (Cayman Islands) Holding 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. That’s because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don’t always get it right.
It’s a pleasure to note that insiders spent CN¥51m buying Tingyi (Cayman Islands) Holding shares, over the last year, without reporting any share sales whatsoever. As if for a flower bud approaching bloom, I become an expectant observer, anticipating with hope, that something splendid is coming. We also note that it was the Chairman of the Board, Hong-Ming Wei, who made the biggest single acquisition, paying HK$50m for shares at about HK$9.91 each.
The good news, alongside the insider buying, for Tingyi (Cayman Islands) Holding bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold CN¥290m worth of its stock. That’s a lot of money, and no small incentive to work hard. Despite being just 0.4% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
Is Tingyi (Cayman Islands) Holding Worth Keeping An Eye On?
As I already mentioned, Tingyi (Cayman Islands) Holding is a growing business, which is what I like to see. On top of that, we’ve seen insiders buying shares even though they already own plenty. That makes the company a prime candidate for my watchlist – and arguably a research priority. Of course, just because Tingyi (Cayman Islands) Holding is growing does not mean it is undervalued. If you’re wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
The good news is that Tingyi (Cayman Islands) Holding is not the only growth stock with insider buying. Here’s a a list of them… 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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If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.