With EPS Growth And More, Shougang Fushan Resources Group (HKG:639) Makes An Interesting Case

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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

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.

View our latest analysis for Shougang Fushan Resources Group

How Fast Is Shougang Fushan Resources Group Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. Recognition must be given to the that Shougang Fushan Resources Group has grown EPS by 49% per year, over the last three years. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Shougang Fushan Resources Group shareholders can take confidence from the fact that EBIT margins are up from 35% to 63%, 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.

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 Shougang Fushan Resources Group's future profits.

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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Shareholders in Shougang Fushan Resources Group will be more than happy to see insiders committing themselves to the company, spending HK$2.0m on shares in just twelve months. When you contrast that with the complete lack of sales, it's easy for shareholders to be brimming with joyful expectancy. Zooming in, we can see that the biggest insider purchase was by Deputy MD & Executive Director Zhaoqiang Chen for HK$1.3m worth of shares, at about HK$2.51 per share.

Along with the insider buying, another encouraging sign for Shougang Fushan Resources Group is that insiders, as a group, have a considerable shareholding. Indeed, they hold HK$103m worth of its stock. This considerable investment should help drive long-term value in the business. Despite being just 0.7% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. The cherry on top is that the CEO, Wenli Fan is paid comparatively modestly to CEOs at similar sized companies. The median total compensation for CEOs of companies similar in size to Shougang Fushan Resources Group, with market caps between HK$7.8b and HK$25b, is around HK$4.8m.

Shougang Fushan Resources Group offered total compensation worth HK$2.8m to its CEO in the year to December 2021. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Does Shougang Fushan Resources Group Deserve A Spot On Your Watchlist?

Shougang Fushan Resources Group's earnings per share growth have been climbing higher at an appreciable rate. What's more, insiders own a significant stake in the company and have been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Shougang Fushan Resources Group deserves timely attention. Before you take the next step you should know about the 2 warning signs for Shougang Fushan Resources Group (1 is a bit concerning!) that we have uncovered.

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.