Stock Analysis

Here's Why I Think China BlueChemical (HKG:3983) Might Deserve Your Attention Today

SEHK:3983
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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 Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like China BlueChemical (HKG:3983). 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. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

Check out our latest analysis for China BlueChemical

China BlueChemical's Improving Profits

Over the last three years, China BlueChemical 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. Thus, it makes sense to focus on more recent growth rates, instead. China BlueChemical has grown its trailing twelve month EPS from CN¥0.15 to CN¥0.16, in the last year. That amounts to a small improvement of 6.2%.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. To cut to the chase China BlueChemical's EBIT margins dropped last year, and so did its revenue. That is, not a hint of euphemism here, suboptimal.

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.

earnings-and-revenue-history
SEHK:3983 Earnings and Revenue History July 16th 2021

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for China BlueChemical's future profits.

Are China BlueChemical 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. For companies with market capitalizations between CN¥6.5b and CN¥21b, like China BlueChemical, the median CEO pay is around CN¥3.6m.

The CEO of China BlueChemical only received CN¥769k in total compensation for the year ending . 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 isn't a huge factor in my view of the company, 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.

Should You Add China BlueChemical To Your Watchlist?

As I already mentioned, China BlueChemical is a growing business, which is what I like to see. Not only that, but the CEO is paid quite reasonably, which makes me feel more trusting of the board of directors. So I do think the stock deserves further research, if not instant addition to your watchlist. Still, you should learn about the 2 warning signs we've spotted with China BlueChemical .

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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. 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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