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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
In contrast to all that, I prefer to spend time on companies like China Traditional Chinese Medicine Holdings (HKG:570), which has not only revenues, but also profits. Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
China Traditional Chinese Medicine Holdings's Earnings Per Share Are Growing.
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. It's no surprise, then, that I like to invest in companies with EPS growth. Over the last three years, China Traditional Chinese Medicine Holdings has grown EPS by 7.7% per year. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.
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 China Traditional Chinese Medicine Holdings's EBIT margins were flat over the last year, revenue grew by a solid 3.4% to CN¥15b. That's progress.
In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.
Fortunately, we've got access to analyst forecasts of China Traditional Chinese Medicine Holdings's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are China Traditional Chinese Medicine Holdings 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 China Traditional Chinese Medicine Holdings insiders have a significant amount of capital invested in the stock. Notably, they have an enormous stake in the company, worth CN¥1.3b. I would find that kind of skin in the game quite encouraging, if I owned shares, since it would ensure that the leaders of the company would also experience my success, or failure, with the stock.
It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. I discovered that the median total compensation for the CEOs of companies like China Traditional Chinese Medicine Holdings with market caps between CN¥13b and CN¥42b is about CN¥4.6m.
The CEO of China Traditional Chinese Medicine Holdings only received CN¥2.3m in total compensation for the year ending . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.
Does China Traditional Chinese Medicine Holdings Deserve A Spot On Your Watchlist?
One important encouraging feature of China Traditional Chinese Medicine Holdings is that it is growing profits. Earnings growth might be the main game for China Traditional Chinese Medicine Holdings, but the fun does not stop there. Boasting both modest CEO pay and considerable insider ownership, I'd argue this one is worthy of the watchlist, at least. Still, you should learn about the 1 warning sign we've spotted with China Traditional Chinese Medicine Holdings .
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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