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

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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In contrast to all that, I prefer to spend time on companies like China BlueChemical (HKG:3983), which has not only revenues, but also profits. Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. 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

How Quickly Is China BlueChemical 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 BlueChemical has grown EPS by 48% per year, over the last three years. Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.

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. China BlueChemical shareholders can take confidence from the fact that EBIT margins are up from 5.7% to 12%, and revenue is growing. That's great to see, on both counts.

In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.

Fortunately, we've got access to analyst forecasts of China BlueChemical's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are China BlueChemical Insiders Aligned With All Shareholders?

As a general rule, I think it worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. For companies with market capitalizations between CN¥6.4b and CN¥20b, like China BlueChemical, the median CEO pay is around CN¥3.0m.

The China BlueChemical CEO received total compensation of just CN¥769k in the year to . 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 a culture of integrity, in a broader sense.

Does China BlueChemical Deserve A Spot On Your Watchlist?

China BlueChemical's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. With rocketing profits, its seems likely the business has a rosy future; and it may have hit an inflection point. Meanwhile, the very reasonable CEO pay reassures me a little, since it points to an absence profligacy. While I couldn't be sure without a deeper dive, it does seem that China BlueChemical has the hallmarks of a quality business; and that would make it well worth watching. We don't want to rain on the parade too much, but we did also find 3 warning signs for China BlueChemical (1 makes us a bit uncomfortable!) that you need to be mindful of.

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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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.