Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In contrast to all that, I prefer to spend time on companies like CSPC Pharmaceutical Group (HKG:1093), which has not only revenues, but also profits. Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. 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.
How Quickly Is CSPC Pharmaceutical Group Increasing Earnings Per Share?
As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. As a tree reaches steadily for the sky, CSPC Pharmaceutical Group's EPS has grown 30% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.
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. CSPC Pharmaceutical Group maintained stable EBIT margins over the last year, all while growing revenue 13% to CN¥25b. That's progress.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
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 CSPC Pharmaceutical Group's future profits.
Are CSPC Pharmaceutical Group Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. 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 shining light for CSPC Pharmaceutical Group is the serious outlay one insider has made to buy shares, in the last year. Specifically, in one large transaction Executive Chairman & CEO Dongchen Cai paid HK$103m, for stock at HK$7.47 per share. Big insider buys like that are almost as rare as an ocean free of single use plastic waste.
The good news, alongside the insider buying, for CSPC Pharmaceutical Group bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they have a glittering mountain of wealth invested in it, currently valued at CN¥28b. Coming in at 23% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. So it might be my imagination, but I do sense the glimmer of an opportunity.
Is CSPC Pharmaceutical Group Worth Keeping An Eye On?
For growth investors like me, CSPC Pharmaceutical Group's raw rate of earnings growth is a beacon in the night. The cranberry sauce on the turkey is that insiders own a bunch of shares, and one has been buying more. So it's fair to say I think this stock may well deserve a spot on your watchlist. You still need to take note of risks, for example - CSPC Pharmaceutical Group has 1 warning sign we think you should be aware of.
The good news is that CSPC Pharmaceutical Group 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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