Here's Why We Think Shougang Fushan Resources Group (HKG:639) Is Well Worth Watching

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. 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. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Shougang Fushan Resources Group (HKG:639). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Shougang Fushan Resources Group with the means to add long-term value to shareholders.

Check out our latest analysis for Shougang Fushan Resources Group

How Quickly Is Shougang Fushan Resources Group Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Impressively, Shougang Fushan Resources Group has grown EPS by 34% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.

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. The music to the ears of Shougang Fushan Resources Group shareholders is that EBIT margins have grown from 35% to 55% in the last 12 months and revenues are on an upwards trend as well. Both of which are great metrics to check off for potential growth.

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

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Shougang Fushan Resources Group?

Are Shougang Fushan Resources 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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Over the last 12 months Shougang Fushan Resources Group insiders spent HK$1.2m more buying shares than they received from selling them. On balance, that's a good sign. We also note that it was the Deputy MD & Executive Director, Zhaoqiang Chen, who made the biggest single acquisition, paying HK$785k for shares at about HK$1.91 each.

Recent insider purchases of Shougang Fushan Resources Group stock is not the only way management has kept the interests of the general public shareholders in mind. To be specific, the CEO is paid modestly when compared to company peers of the same size. For companies with market capitalisations between HK$7.8b and HK$25b, like Shougang Fushan Resources Group, the median CEO pay is around HK$4.2m.

Shougang Fushan Resources Group offered total compensation worth HK$2.8m to its CEO in the year to December 2021. That is actually below the median for CEO's of similarly sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, 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.

Is Shougang Fushan Resources Group Worth Keeping An Eye On?

If you believe that share price follows earnings per share you should definitely be delving further into Shougang Fushan Resources Group's strong EPS growth. And that's not the only positive either. We have both insider buying and reasonable and remuneration to consider. On balance the message seems to be that this stock is worth looking at, at least for a while. Even so, be aware that Shougang Fushan Resources Group is showing 2 warning signs in our investment analysis , and 1 of those is significant...

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Shougang Fushan Resources Group, 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.