Stock Analysis

Here's Why We Think China Hanking Holdings (HKG:3788) Is Well Worth Watching

SEHK:3788
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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 completely 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.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like China Hanking Holdings (HKG:3788). 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. 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.

See our latest analysis for China Hanking Holdings

How Quickly Is China Hanking Holdings Increasing Earnings Per Share?

As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. I, for one, am blown away by the fact that China Hanking Holdings has grown EPS by 43% per year, over the last three years. While that sort of growth rate isn't sustainable for long, it certainly catches my attention; like a crow with a sparkly stone.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. While China Hanking Holdings did well to grow revenue over the last year, EBIT margins were dampened at the same time. So if EBIT margins can stabilize, this top-line growth should pay off for shareholders.

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

earnings-and-revenue-history
SEHK:3788 Earnings and Revenue History May 17th 2021

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are China Hanking Holdings Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. 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 China Hanking Holdings shares in the last year. Even better, though, is that the CFO & Executive Director, Xuezhi Zheng, bought a whopping CN¥3.7m worth of shares, paying about CN¥1.61 per share, on average. Big buys like that give me a sense of opportunity; actions speak louder than words.

On top of the insider buying, we can also see that China Hanking Holdings insiders own a large chunk of the company. Indeed, with a collective holding of 68%, 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. At the current share price, that insider holding is worth a whopping CN¥2.0b. That means they have plenty of their own capital riding on the performance of the business!

Should You Add China Hanking Holdings To Your Watchlist?

China Hanking Holdings's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. The incing on the cake is that insiders own a large chunk of the company and one has even been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe China Hanking Holdings deserves timely attention. It's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with China Hanking Holdings , and understanding these should be part of your investment process.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of China Hanking 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. 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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