Should You Be Adding Shanghai Fudan-Zhangjiang Bio-Pharmaceutical (HKG:1349) To Your Watchlist Today?

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

So if you're like me, you might be more interested in profitable, growing companies, like Shanghai Fudan-Zhangjiang Bio-Pharmaceutical (HKG:1349). 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.

Check out our latest analysis for Shanghai Fudan-Zhangjiang Bio-Pharmaceutical

How Quickly Is Shanghai Fudan-Zhangjiang Bio-Pharmaceutical Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. As a tree reaches steadily for the sky, Shanghai Fudan-Zhangjiang Bio-Pharmaceutical's EPS has grown 20% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

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. The good news is that Shanghai Fudan-Zhangjiang Bio-Pharmaceutical is growing revenues, and EBIT margins improved by 4.5 percentage points to 21%, over the last year. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Shanghai Fudan-Zhangjiang Bio-Pharmaceutical Insiders Aligned With All Shareholders?

I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Shanghai Fudan-Zhangjiang Bio-Pharmaceutical insiders have a significant amount of capital invested in the stock. Notably, they have an enormous stake in the company, worth CN¥3.3b. That equates to 18% of the company, making insiders powerful and aligned with other shareholders. Very encouraging.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, I'd say they are indeed. I discovered that the median total compensation for the CEOs of companies like Shanghai Fudan-Zhangjiang Bio-Pharmaceutical with market caps between CN¥13b and CN¥42b is about CN¥4.4m.

Shanghai Fudan-Zhangjiang Bio-Pharmaceutical offered total compensation worth CN¥3.4m to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of good governance, more generally.

Does Shanghai Fudan-Zhangjiang Bio-Pharmaceutical Deserve A Spot On Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Shanghai Fudan-Zhangjiang Bio-Pharmaceutical's strong EPS growth. If you need more convincing beyond that EPS growth rate, don't forget about the reasonable remuneration and the high insider ownership. Each to their own, but I think all this makes Shanghai Fudan-Zhangjiang Bio-Pharmaceutical look rather interesting indeed. Even so, be aware that Shanghai Fudan-Zhangjiang Bio-Pharmaceutical is showing 2 warning signs in our investment analysis , you should know about...

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

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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