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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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Beijing Tong Ren Tang Chinese Medicine (HKG:3613). While that doesn’t make the shares worth buying at any price, you can’t deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
Beijing Tong Ren Tang Chinese Medicine’s Earnings Per Share Are Growing.
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. As a tree reaches steadily for the sky, Beijing Tong Ren Tang Chinese Medicine’s EPS has grown 18% each year, compound, over three years. If the company can sustain that sort of growth, we’d expect shareholders to come away winners.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company’s growth. While we note Beijing Tong Ren Tang Chinese Medicine’s EBIT margins were flat over the last year, revenue grew by a solid 20% to HK$1.5b. That’s a real positive.
The chart below shows how the company’s bottom and top lines have progressed over time. For finer detail, click on the image.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Beijing Tong Ren Tang Chinese Medicine.
Are Beijing Tong Ren Tang Chinese Medicine 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. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
We note that Beijing Tong Ren Tang Chinese Medicine insiders spent HK$833k on stock, over the last year; in contrast, we didn’t see any selling. That’s nice to see, because it suggests insiders are optimistic. It is also worth noting that it was CFO, Company Secretary & Executive Director Man Lin who made the biggest single purchase, worth HK$460k, paying HK$15.32 per share.
I do like that insiders have been buying shares in Beijing Tong Ren Tang Chinese Medicine, but there is more evidence of shareholder friendly management. Specifically, the CEO is paid quite reasonably for a company of this size. I discovered that the median total compensation for the CEOs of companies like Beijing Tong Ren Tang Chinese Medicine with market caps between HK$7.8b and HK$25b is about HK$3.2m.
Beijing Tong Ren Tang Chinese Medicine offered total compensation worth HK$1.7m to its CEO in the year to December 2017. That comes in below the average for similar sized companies, and seems pretty reasonable to me. 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. I’d also argue reasonable pay levels attest to good decision making more generally.
Should You Add Beijing Tong Ren Tang Chinese Medicine To Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Beijing Tong Ren Tang Chinese Medicine’s strong EPS growth. And that’s not the only positive, either. We have both insider buying and reasonable and remuneration to consider. On balance the message seems to be that this stock is worth looking at, at least for a while. Of course, identifying quality businesses is only half the battle; investors need to know whether the stock is undervalued. So you might want to consider this free discounted cashflow valuation of Beijing Tong Ren Tang Chinese Medicine.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Beijing Tong Ren Tang Chinese Medicine, you’ll probably love this free list of growing companies that insiders are buying.Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.