Do Fufeng Group's (HKG:546) Earnings Warrant Your Attention?

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Fufeng Group (HKG:546). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

See our latest analysis for Fufeng Group

How Quickly Is Fufeng Group Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. We can see that in the last three years Fufeng Group grew its EPS by 8.5% per year. That growth rate is fairly good, assuming the company can keep it up.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. The music to the ears of Fufeng Group shareholders is that EBIT margins have grown from 6.4% to 13% in the last 12 months and revenues are on an upwards trend as well. That's great to see, on both counts.

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.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Fufeng Group.

Are Fufeng Group Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

One gleaming positive for Fufeng Group, in the last year, is that a certain insider has buying shares with ample enthusiasm. In one fell swoop, Principal Founder & Executive Chairman Xuechun Li, spent HK$3.5m, at a price of HK$3.47 per share. Big insider buys like that are a rarity and should prompt discussion on the merits of the business.

On top of the insider buying, we can also see that Fufeng Group insiders own a large chunk of the company. Actually, with 41% of the company to their names, insiders are profoundly invested in the business. Those who are comforted by solid insider ownership like this should be happy, as it implies that those running the business are genuinely motivated to create shareholder value. This insider holding amounts to This is an incredible endorsement from them.

Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because on our analysis the CEO, Deheng Li, is paid less than the median for similar sized companies. Our analysis has discovered that the median total compensation for the CEOs of companies like Fufeng Group with market caps between CN¥7.2b and CN¥23b is about CN¥4.4m.

Fufeng Group's CEO took home a total compensation package of CN¥1.7m in the year prior to December 2021. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.

Is Fufeng Group Worth Keeping An Eye On?

One positive for Fufeng Group is that it is growing EPS. That's nice to see. Better yet, insiders are significant shareholders, and have been buying more shares. That makes the company a prime candidate for your watchlist - and arguably a research priority. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Fufeng Group , and understanding it should be part of your investment process.

Keen growth investors love to see insider buying. Thankfully, Fufeng Group isn't the only one. You can see a 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.