Do Shanghai Chicmax Cosmetic's (HKG:2145) Earnings Warrant Your Attention?

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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

In contrast to all that, many investors prefer to focus on companies like Shanghai Chicmax Cosmetic (HKG:2145), which has not only revenues, but also profits. While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

Check out our latest analysis for Shanghai Chicmax Cosmetic

How Quickly Is Shanghai Chicmax Cosmetic Increasing Earnings Per Share?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That makes EPS growth an attractive quality for any company. Shareholders will be happy to know that Shanghai Chicmax Cosmetic's EPS has grown 37% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

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. The good news is that Shanghai Chicmax Cosmetic is growing revenues, and EBIT margins improved by 9.8 percentage points to 13%, over the last year. Ticking those two boxes is a good sign of growth, in our book.

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.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Shanghai Chicmax Cosmetic.

Are Shanghai Chicmax Cosmetic Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

The real kicker here is that Shanghai Chicmax Cosmetic insiders spent a staggering CN¥40m on acquiring shares in just one year, without single share being sold in the meantime. Buying like that is a fantastic look for the company and should rouse the market in anticipation for the future. Zooming in, we can see that the biggest insider purchase was by Independent Non-Executive Director Yan Luo for HK$12m worth of shares, at about HK$40.51 per share.

On top of the insider buying, we can also see that Shanghai Chicmax Cosmetic insiders own a large chunk of the company. Actually, with 40% of the company to their names, insiders are profoundly invested in the business. This should be a welcoming sign for investors because it suggests that the people making the decisions are also impacted by their choices. CN¥4.9b This is an incredible endorsement from them.

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because Shanghai Chicmax Cosmetic's CEO, Yixiong Lyu, is paid at a relatively modest level when compared to other CEOs for companies of this size. For companies with market capitalisations between CN¥7.2b and CN¥23b, like Shanghai Chicmax Cosmetic, the median CEO pay is around CN¥3.5m.

The Shanghai Chicmax Cosmetic CEO received total compensation of just CN¥676k in the year to December 2023. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. 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.

Should You Add Shanghai Chicmax Cosmetic To Your Watchlist?

For growth investors, Shanghai Chicmax Cosmetic's raw rate of earnings growth is a beacon in the night. Not only that, but we can see that insiders both own a lot of, and are buying more shares in the company. These things considered, this is one stock worth watching. We should say that we've discovered 1 warning sign for Shanghai Chicmax Cosmetic that you should be aware of before investing here.

Keen growth investors love to see insider activity. Thankfully, Shanghai Chicmax Cosmetic isn't the only one. You can see a a curated list of Hong Kong companies which have exhibited consistent growth accompanied by high insider ownership.

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.