Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
In contrast to all that, I prefer to spend time on companies like Tian Chang Group Holdings (HKG:2182), which has not only revenues, but also profits. While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
How Fast Is Tian Chang Group Holdings Growing Its Earnings Per Share?
Over the last three years, Tian Chang Group Holdings has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. As a result, I'll zoom in on growth over the last year, instead. Like a falcon taking flight, Tian Chang Group Holdings's EPS soared from HK$0.11 to HK$0.17, over the last year. That's a impressive gain of 61%.
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 Tian Chang Group Holdings is growing revenues, and EBIT margins improved by 3.2 percentage points to 13%, over the last year. Ticking those two boxes is a good sign of growth, in my book.
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
Tian Chang Group Holdings isn't a huge company, given its market capitalization of HK$267m. That makes it extra important to check on its balance sheet strength.
Are Tian Chang Group Holdings Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
First things first; I didn't see insiders sell Tian Chang Group Holdings shares in the last year. Even better, though, is that the Chairman & CEO, Tsan Lam Chan, bought a whopping HK$2.1m worth of shares, paying about HK$0.35 per share, on average. Big buys like that give me a sense of opportunity; actions speak louder than words.
And the insider buying isn't the only sign of alignment between shareholders and the board, since Tian Chang Group Holdings insiders own more than a third of the company. Indeed, with a collective holding of 74%, company insiders are in control and have plenty of capital behind the venture. This makes me think they will be incentivised to plan for the long term - something I like to see. In terms of absolute value, insiders have HK$197m invested in the business, using the current share price. That's nothing to sneeze at!
Should You Add Tian Chang Group Holdings To Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Tian Chang Group Holdings's strong EPS growth. Better still, insiders own a large chunk of the company and one has even been buying more shares. So I do think this is one stock worth watching. You should always think about risks though. Case in point, we've spotted 2 warning signs for Tian Chang Group Holdings you should be aware of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Tian Chang Group Holdings, you'll probably love this free list of growing companies that insiders are buying.
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.
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