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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Genertec Universal Medical Group (HKG:2666). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. 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.
How Fast Is Genertec Universal Medical Group Growing?
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That makes EPS growth an attractive quality for any company. We can see that in the last three years Genertec Universal Medical Group grew its EPS by 13% per year. That's a pretty good rate, if the company can sustain it.
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. I note that Genertec Universal Medical Group's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. While we note Genertec Universal Medical Group's EBIT margins were flat over the last year, revenue grew by a solid 25% to CN¥8.5b. That's progress.
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 Genertec Universal Medical Group's future profits.
Are Genertec Universal Medical Group Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. 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.
One gleaming positive for Genertec Universal Medical Group, in the last year, is that a certain insider has buying shares with ample enthusiasm. Indeed, Mang Yee Chu has accumulated shares over the last year, paying a total of CN¥6.6m at an average price of about CN¥6.39. Big insider buys like that are almost as rare as an ocean free of single use plastic waste.
On top of the insider buying, it's good to see that Genertec Universal Medical Group insiders have a valuable investment in the business. To be specific, they have CN¥96m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 0.9% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.
Should You Add Genertec Universal Medical Group To Your Watchlist?
One positive for Genertec Universal Medical Group is that it is growing EPS. That's nice to see. Better yet, insiders are significant shareholders, and have been buying more shares. That makes the company a prime candidate for my watchlist - and arguably a research priority. However, before you get too excited we've discovered 4 warning signs for Genertec Universal Medical Group (1 is a bit unpleasant!) that you should be aware of.
As a growth investor I do like to see insider buying. But Genertec Universal Medical Group 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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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.
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