Does Yunfeng Financial Group (HKG:376) Deserve A Spot On Your Watchlist?

By
Simply Wall St
Published
May 06, 2021
SEHK:376
Source: Shutterstock

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

So if you're like me, you might be more interested in profitable, growing companies, like Yunfeng Financial Group (HKG:376). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. 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.

Check out our latest analysis for Yunfeng Financial Group

Yunfeng Financial Group's Improving Profits

In the last three years Yunfeng Financial Group's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. Thus, it makes sense to focus on more recent growth rates, instead. Like the last firework on New Year's Eve accelerating into the sky, Yunfeng Financial Group's EPS shot from HK$0.08 to HK$0.19, over the last year. You don't see 134% year-on-year growth like that, very often. The best case scenario? That the business has hit a true inflection point.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. I note that Yunfeng Financial 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 Yunfeng Financial Group's EBIT margins were flat over the last year, revenue grew by a solid 29% to HK$11b. That's a real positive.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

earnings-and-revenue-history
SEHK:376 Earnings and Revenue History May 7th 2021

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Yunfeng Financial Group's balance sheet strength, before getting too excited.

Are Yunfeng Financial Group Insiders Aligned With All Shareholders?

As a general rule, I think it worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. For companies with market capitalizations between HK$7.8b and HK$25b, like Yunfeng Financial Group, the median CEO pay is around HK$4.7m.

The Yunfeng Financial Group CEO received total compensation of just HK$2.2m in the year to . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.

Is Yunfeng Financial Group Worth Keeping An Eye On?

Yunfeng Financial Group's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. Such fast EPS growth makes me wonder if the business has hit an inflection point (and I mean the good kind.) Meanwhile, the very reasonable CEO pay reassures me a little, since it points to an absence profligacy. So Yunfeng Financial Group looks like it could be a good quality growth stock, at first glance. That's worth watching. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Yunfeng Financial Group , and understanding this should be part of your investment process.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like 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. 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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