Does CPMC Holdings (HKG:906) Deserve A Spot On Your Watchlist?

By
Simply Wall St
Published
July 15, 2021
SEHK:906
Source: Shutterstock

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. 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.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in CPMC Holdings (HKG:906). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. 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.

See our latest analysis for CPMC Holdings

How Quickly Is CPMC Holdings Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. It's no surprise, then, that I like to invest in companies with EPS growth. We can see that in the last three years CPMC Holdings grew its EPS by 9.3% per year. That growth rate is fairly good, assuming the company can keep it up.

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. CPMC Holdings reported flat revenue and EBIT margins over the last year. That's not bad, but it doesn't point to ongoing future growth, either.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
SEHK:906 Earnings and Revenue History July 15th 2021

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

Are CPMC Holdings Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

One shining light for CPMC Holdings is the serious outlay one insider has made to buy shares, in the last year. Specifically, in one large transaction Wei Zhang paid HK$5.1m, for stock at HK$3.43 per share. It doesn't get much better than that, in terms of large investments from insiders.

The good news, alongside the insider buying, for CPMC Holdings bulls is that insiders (collectively) have a meaningful investment in the stock. Notably, they have an enormous stake in the company, worth CN¥1.0b. That equates to 18% of the company, making insiders powerful and aligned with other shareholders. So it might be my imagination, but I do sense the glimmer of an opportunity.

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. That's because on our analysis the CEO, Ye Zhang, is paid less than the median for similar sized companies. I discovered that the median total compensation for the CEOs of companies like CPMC Holdings with market caps between CN¥2.6b and CN¥10b is about CN¥2.8m.

The CPMC Holdings CEO received CN¥1.7m in compensation for the year ending . That comes in below the average for similar sized companies, and seems pretty reasonable to me. 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. I'd also argue reasonable pay levels attest to good decision making more generally.

Is CPMC Holdings Worth Keeping An Eye On?

One important encouraging feature of CPMC Holdings is that it is growing profits. On top of that, we've seen insiders buying shares even though they already own plenty. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. You still need to take note of risks, for example - CPMC Holdings has 2 warning signs we think you should be aware of.

The good news is that CPMC Holdings is not the only growth stock with insider buying. Here's a list of them... 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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Simply Wall St is focused on providing unbiased, high-quality research coverage on every listed company in the world. Our research team consists of data scientists and multiple equity analysts with over two decades worth of financial markets experience between them.