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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
So if you're like me, you might be more interested in profitable, growing companies, like China Sunshine Paper Holdings (HKG:2002). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
How Quickly Is China Sunshine Paper Holdings Increasing Earnings Per Share?
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that China Sunshine Paper Holdings has managed to grow EPS by 23% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Unfortunately, China Sunshine Paper Holdings's revenue dropped 3.3% last year, but the silver lining is that EBIT margins improved from 5.9% to 12%. That falls short of ideal.
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
Since China Sunshine Paper Holdings is no giant, with a market capitalization of HK$1.3b, so you should definitely check its cash and debt before getting too excited about its prospects.
Are China Sunshine Paper Holdings Insiders Aligned With All Shareholders?
I always like to check up on CEO compensation, because I think that reasonable pay levels, around or below the median, can be a sign that shareholder interests are well considered. I discovered that the median total compensation for the CEOs of companies like China Sunshine Paper Holdings with market caps between CN¥658m and CN¥2.6b is about CN¥1.9m.
China Sunshine Paper Holdings offered total compensation worth CN¥1.6m to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.
Should You Add China Sunshine Paper Holdings To Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about China Sunshine Paper Holdings's strong EPS growth. The fast growth bodes well while the very reasonable CEO pay assists builds some confidence in the board. So I'd venture it may well deserve a spot on your watchlist, or even a little further research. It is worth noting though that we have found 1 warning sign for China Sunshine Paper Holdings that you need to take into consideration.
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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China Sunshine Paper Holdings
China Sunshine Paper Holdings Company Limited, together with its subsidiaries, produces and sells paper products in the People's Republic of China and internationally.
Slightly overvalued with imperfect balance sheet.