Here's Why We Think Shandong Weigao Group Medical Polymer (HKG:1066) Might Deserve Your Attention Today

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Shandong Weigao Group Medical Polymer (HKG:1066). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Shandong Weigao Group Medical Polymer with the means to add long-term value to shareholders.

Our analysis indicates that 1066 is potentially undervalued!

Shandong Weigao Group Medical Polymer's Earnings Per Share Are Growing

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Shandong Weigao Group Medical Polymer managed to grow EPS by 12% per year, over three years. That's a good rate of growth, if it can be sustained.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. While we note Shandong Weigao Group Medical Polymer achieved similar EBIT margins to last year, revenue grew by a solid 10.0% to CN¥14b. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Shandong Weigao Group Medical Polymer's future profits.

Are Shandong Weigao Group Medical Polymer Insiders Aligned With All Shareholders?

Owing to the size of Shandong Weigao Group Medical Polymer, we wouldn't expect insiders to hold a significant proportion of the company. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. To be specific, they have CN¥133m worth of shares. This considerable investment should help drive long-term value in the business. Despite being just 0.3% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. A brief analysis of the CEO compensation suggests they are. Our analysis has discovered that the median total compensation for the CEOs of companies like Shandong Weigao Group Medical Polymer with market caps between CN¥28b and CN¥85b is about CN¥5.1m.

The Shandong Weigao Group Medical Polymer CEO received CN¥3.2m in compensation for the year ending December 2021. That seems pretty reasonable, especially given it's below the median for similar 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Does Shandong Weigao Group Medical Polymer Deserve A Spot On Your Watchlist?

One important encouraging feature of Shandong Weigao Group Medical Polymer is that it is growing profits. Earnings growth might be the main attraction for Shandong Weigao Group Medical Polymer, but the fun does not stop there. With company insiders aligning themselves considerably with the company's success and modest CEO compensation, there's no arguments that this is a stock worth looking into. Of course, identifying quality businesses is only half the battle; investors need to know whether the stock is undervalued. So you might want to consider this free discounted cashflow valuation of Shandong Weigao Group Medical Polymer.

Although Shandong Weigao Group Medical Polymer certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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.