Should You Be Adding YiChang HEC ChangJiang Pharmaceutical (HKG:1558) 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 currently lacks a track record of revenue and profit. 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.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in YiChang HEC ChangJiang Pharmaceutical (HKG:1558). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide YiChang HEC ChangJiang Pharmaceutical with the means to add long-term value to shareholders.

See our latest analysis for YiChang HEC ChangJiang Pharmaceutical

YiChang HEC ChangJiang Pharmaceutical's Improving Profits

Over the last three years, YiChang HEC ChangJiang Pharmaceutical has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. As a result, we'll zoom in on growth over the last year, instead. To the delight of shareholders, YiChang HEC ChangJiang Pharmaceutical's EPS soared from CN¥1.29 to CN¥1.87, over the last year. That's a impressive gain of 45%.

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. Unfortunately, YiChang HEC ChangJiang Pharmaceutical's revenue dropped 2.1% last year, but the silver lining is that EBIT margins improved from 28% to 41%. That's not a good look.

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.

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check YiChang HEC ChangJiang Pharmaceutical's balance sheet strength, before getting too excited.

Are YiChang HEC ChangJiang Pharmaceutical Insiders Aligned With All Shareholders?

As a general rule, it's worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. The median total compensation for CEOs of companies similar in size to YiChang HEC ChangJiang Pharmaceutical, with market caps between CN¥2.8b and CN¥11b, is around CN¥3.3m.

The YiChang HEC ChangJiang Pharmaceutical CEO received CN¥2.6m in compensation for the year ending December 2023. That is actually below the median for CEO's of similarly sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add YiChang HEC ChangJiang Pharmaceutical To Your Watchlist?

You can't deny that YiChang HEC ChangJiang Pharmaceutical has grown its earnings per share at a very impressive rate. That's attractive. With swiftly growing earnings, the best days may still be to come, and the modest CEO pay suggests the company is careful with cash. So this stock is well worth an addition to your watchlist as it has the potential to provide great value to shareholders. We don't want to rain on the parade too much, but we did also find 2 warning signs for YiChang HEC ChangJiang Pharmaceutical (1 doesn't sit too well with us!) that you need to be mindful of.

Although YiChang HEC ChangJiang Pharmaceutical certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of Hong Kong companies that not only boast of strong growth but have strong insider backing.

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.