Here's Why We Think Medicskin Holdings (HKG:8307) Is Well Worth Watching

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 currently lacks a track record of revenue and profit. 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.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Medicskin Holdings (HKG:8307). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Medicskin Holdings with the means to add long-term value to shareholders.

See our latest analysis for Medicskin Holdings

How Fast Is Medicskin Holdings Growing Its Earnings Per Share?

In business, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS) performance. So for many budding investors, improving EPS is considered a good sign. Commendations have to be given in seeing that Medicskin Holdings grew its EPS from HK$0.0023 to HK$0.0099, in one short year. When you see earnings grow that quickly, it often means good things ahead for the company. This could point to the business hitting a point of inflection.

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. Medicskin Holdings shareholders can take confidence from the fact that EBIT margins are up from -5.5% to 7.4%, and revenue is growing. Both of which are great metrics to check off for potential growth.

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

Medicskin Holdings isn't a huge company, given its market capitalisation of HK$90m. That makes it extra important to check on its balance sheet strength.

Are Medicskin Holdings Insiders Aligned With All Shareholders?

Theory would suggest that it's an encouraging sign to see high insider ownership of a company, since it ties company performance directly to the financial success of its management. So we're pleased to report that Medicskin Holdings insiders own a meaningful share of the business. In fact, they own 69% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. Valued at only HK$90m Medicskin Holdings is really small for a listed company. So despite a large proportional holding, insiders only have HK$63m worth of stock. This isn't an overly large holding but it should still keep the insiders motivated to deliver the best outcomes for shareholders.

Should You Add Medicskin Holdings To Your Watchlist?

Medicskin Holdings' earnings have taken off in quite an impressive fashion. That sort of growth is nothing short of eye-catching, and the large investment held by insiders should certainly brighten the view of the company. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So based on this quick analysis, we do think it's worth considering Medicskin Holdings for a spot on your watchlist. Still, you should learn about the 3 warning signs we've spotted with Medicskin Holdings (including 2 which are significant).

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 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.