Here's Why We Think China Medical System Holdings (HKG:867) Is Well Worth Watching
Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
So if you're like me, you might be more interested in profitable, growing companies, like China Medical System Holdings (HKG:867). 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. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
See our latest analysis for China Medical System Holdings
How Fast Is China Medical System Holdings 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. China Medical System Holdings managed to grow EPS by 15% per year, over three years. That growth rate is fairly good, assuming the company can keep it up.
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. China Medical System Holdings maintained stable EBIT margins over the last year, all while growing revenue 14% to CN¥6.9b. That's progress.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for China Medical System Holdings's future profits.
Are China Medical System Holdings 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. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
The good news is that China Medical System Holdings insiders spent a whopping CN¥224m on stock in just one year, and I didn't see any selling. And so I find myself almost expectant, and certainly hopeful, that this large outlay signals prescient optimism for the business. We also note that it was the Founder, Kong Lam, who made the biggest single acquisition, paying HK$24m for shares at about HK$8.10 each.
On top of the insider buying, we can also see that China Medical System Holdings insiders own a large chunk of the company. In fact, they own 49% of the shares, making insiders a very influential shareholder group. I'm always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. At the current share price, that insider holding is worth a whopping CN¥19b. Now that's what I call some serious skin in the game!
Is China Medical System Holdings Worth Keeping An Eye On?
As I already mentioned, China Medical System Holdings is a growing business, which is what I like to see. On top of that, we've seen insiders buying shares even though they already own plenty. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for China Medical System Holdings that you should be aware of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of China Medical System Holdings, 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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About SEHK:867
China Medical System Holdings
An investment holding company, manufactures, sells, markets, and promotes pharmaceutical products in the People’s Republic of China.
Flawless balance sheet with reasonable growth potential and pays a dividend.