If EPS Growth Is Important To You, Rici Healthcare Holdings (HKG:1526) Presents An Opportunity

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

In contrast to all that, many investors prefer to focus on companies like Rici Healthcare Holdings (HKG:1526), 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 Rici Healthcare Holdings with the means to add long-term value to shareholders.

View our latest analysis for Rici Healthcare Holdings

How Fast Is Rici Healthcare Holdings Growing Its Earnings Per Share?

Over the last three years, Rici Healthcare Holdings has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. Thus, it makes sense to focus on more recent growth rates, instead. Rici Healthcare Holdings' EPS skyrocketed from CN¥0.20 to CN¥0.26, in just one year; a result that's bound to bring a smile to shareholders. That's a fantastic gain of 31%.

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. The good news is that Rici Healthcare Holdings is growing revenues, and EBIT margins improved by 6.5 percentage points to 25%, over the last year. Both of which are great metrics to check off for potential growth.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

Since Rici Healthcare Holdings is no giant, with a market capitalisation of HK$1.8b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Rici Healthcare Holdings Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So we're pleased to report that Rici Healthcare Holdings insiders own a meaningful share of the business. Indeed, with a collective holding of 55%, company insiders are in control and have plenty of capital behind the venture. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. To give you an idea, the value of insiders' holdings in the business are valued at CN¥977m at the current share price. That's nothing to sneeze at!

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. Our quick analysis into CEO remuneration would seem to indicate they are. The median total compensation for CEOs of companies similar in size to Rici Healthcare Holdings, with market caps between CN¥714m and CN¥2.9b, is around CN¥2.4m.

Rici Healthcare Holdings offered total compensation worth CN¥1.9m to its CEO in the year to December 2022. 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.

Is Rici Healthcare Holdings Worth Keeping An Eye On?

For growth investors, Rici Healthcare Holdings' raw rate of earnings growth is a beacon in the night. If you need more convincing beyond that EPS growth rate, don't forget about the reasonable remuneration and the high insider ownership. The overarching message here is that Rici Healthcare Holdings has underlying strengths that make it worth a look at. Of course, profit growth is one thing but it's even better if Rici Healthcare Holdings is receiving high returns on equity, since that should imply it can keep growing without much need for capital. Click on this link to see how it is faring against the average in its industry.

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 tailored list of Hong Kong companies which have demonstrated growth backed by recent insider purchases.

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.