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

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Shanghai Fudan-Zhangjiang Bio-Pharmaceutical (HKG:1349). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. 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

Shanghai Fudan-Zhangjiang Bio-Pharmaceutical's Earnings Per Share Are Growing.

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. It certainly is nice to see that Shanghai Fudan-Zhangjiang Bio-Pharmaceutical has managed to grow EPS by 20% per year 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.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. 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. Ticking those two boxes is a good sign of growth, in my book.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

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

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

It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. 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¥2.6b. That equates to 18% of the company, making insiders powerful and aligned with other shareholders. Very encouraging.

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. A brief analysis of the CEO compensation suggests they are. I discovered that the median total compensation for the CEOs of companies like Shanghai Fudan-Zhangjiang Bio-Pharmaceutical with market caps between CN¥6.5b and CN¥21b is about CN¥3.8m.

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. 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. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add Shanghai Fudan-Zhangjiang Bio-Pharmaceutical To 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. We don't want to rain on the parade too much, but we did also find 1 warning sign for Shanghai Fudan-Zhangjiang Bio-Pharmaceutical that you need to be mindful of.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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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