Does Precious Dragon Technology Holdings (HKG:1861) Deserve A Spot On Your Watchlist?

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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. 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.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Precious Dragon Technology Holdings (HKG:1861). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Precious Dragon Technology Holdings with the means to add long-term value to shareholders.

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How Quickly Is Precious Dragon Technology Holdings Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Recognition must be given to the that Precious Dragon Technology Holdings has grown EPS by 37% per year, over the last three years. Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. EBIT margins for Precious Dragon Technology Holdings remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 17% to HK$663m. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

View our latest analysis for Precious Dragon Technology Holdings

Since Precious Dragon Technology Holdings is no giant, with a market capitalisation of HK$426m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Precious Dragon Technology Holdings Insiders Aligned With All Shareholders?

Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price. So we're pleased to report that Precious Dragon Technology Holdings insiders own a meaningful share of the business. Indeed, with a collective holding of 75%, company insiders are in control and have plenty of capital behind the venture. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. To give you an idea, the value of insiders' holdings in the business are valued at HK$319m at the current share price. That's nothing to sneeze at!

Is Precious Dragon Technology Holdings Worth Keeping An Eye On?

Precious Dragon Technology 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. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. So at the surface level, Precious Dragon Technology Holdings is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. Still, you should learn about the 3 warning signs we've spotted with Precious Dragon Technology Holdings.

Although Precious Dragon Technology Holdings certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of Hong Kong companies that not only boast of strong growth but have strong insider backing.

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.