Is Now The Time To Put China XLX Fertiliser (HKG:1866) On Your Watchlist?

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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in China XLX Fertiliser (HKG:1866). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide China XLX Fertiliser with the means to add long-term value to shareholders.

Check out our latest analysis for China XLX Fertiliser

How Quickly Is China XLX Fertiliser 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. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Impressively, China XLX Fertiliser has grown EPS by 36% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. China XLX Fertiliser maintained stable EBIT margins over the last year, all while growing revenue 64% to CN¥21b. 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.

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 China XLX Fertiliser's balance sheet strength, before getting too excited.

Are China XLX Fertiliser Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

One gleaming positive for China XLX Fertiliser, in the last year, is that a certain insider has buying shares with ample enthusiasm. Specifically, in one large transaction Executive Director Yunhua Yan paid HK$367m, for stock at HK$6.50 per share. It doesn't get much better than that, in terms of large investments from insiders.

Along with the insider buying, another encouraging sign for China XLX Fertiliser is that insiders, as a group, have a considerable shareholding. We note that their impressive stake in the company is worth CN¥1.0b. This totals to 18% of shares in the company. Enough to lead management's decision making process down a path that brings the most benefit to shareholders. Looking very optimistic for investors.

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 on our analysis the CEO, Tongsheng Ma, is paid less than the median for similar sized companies. The median total compensation for CEOs of companies similar in size to China XLX Fertiliser, with market caps between CN¥2.8b and CN¥11b, is around CN¥3.7m.

China XLX Fertiliser's CEO took home a total compensation package of CN¥810k in the year prior to December 2021. 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 shouldn't be the biggest factor in how the company is viewed, 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.

Does China XLX Fertiliser Deserve A Spot On Your Watchlist?

You can't deny that China XLX Fertiliser has grown its earnings per share at a very impressive rate. That's attractive. On top of that, insiders own a significant piece of the pie when it comes to the company's stock, and one has been buying more. Astute investors will want to keep this stock on watch. We should say that we've discovered 3 warning signs for China XLX Fertiliser that you should be aware of before investing here.

The good news is that China XLX Fertiliser is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!

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.