With EPS Growth And More, Pacific Online (HKG:543) Makes An Interesting Case

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like Pacific Online (HKG:543), which has not only revenues, but also profits. Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

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Pacific Online's Improving Profits

In the last three years Pacific Online's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. So it would be better to isolate the growth rate over the last year for our analysis. To the delight of shareholders, Pacific Online's EPS soared from CN¥0.014 to CN¥0.022, over the last year. That's a commendable gain of 57%.

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. To cut to the chase Pacific Online's EBIT margins dropped last year, and so did its revenue. Shareholders will be hoping for a change in fortunes if they're looking for profit growth.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

See our latest analysis for Pacific Online

Pacific Online isn't a huge company, given its market capitalisation of HK$409m. That makes it extra important to check on its balance sheet strength.

Are Pacific Online Insiders Aligned With All Shareholders?

Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price. So as you can imagine, the fact that Pacific Online insiders own a significant number of shares certainly is appealing. Indeed, with a collective holding of 55%, company insiders are in control and have plenty of capital behind the venture. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. With that sort of holding, insiders have about CN¥225m riding on the stock, at current prices. That's nothing to sneeze at!

Should You Add Pacific Online To Your Watchlist?

For growth investors, Pacific Online's raw rate of earnings growth is a beacon in the night. This EPS growth rate is something the company should be proud of, and so it's no surprise that insiders are holding on to a considerable chunk of shares. The growth and insider confidence is looked upon well and so it's worthwhile to investigate further with a view to discern the stock's true value. You still need to take note of risks, for example - Pacific Online has 4 warning signs (and 2 which are significant) we think you should know about.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in HK with promising growth potential and insider confidence.

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.