With EPS Growth And More, Zhong Ao Home Group (HKG:1538) Is Interesting

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.'

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Zhong Ao Home Group (HKG:1538). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for Zhong Ao Home Group

How Fast Is Zhong Ao Home Group Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That makes EPS growth an attractive quality for any company. Impressively, Zhong Ao Home Group has grown EPS by 37% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). While we note Zhong Ao Home Group's EBIT margins were flat over the last year, revenue grew by a solid 44% to CN¥1.7b. That's progress.

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.

Zhong Ao Home Group isn't a huge company, given its market capitalization of HK$624m. That makes it extra important to check on its balance sheet strength.

Are Zhong Ao Home Group Insiders Aligned With All Shareholders?

I always like to check up on CEO compensation, because I think that reasonable pay levels, around or below the median, can be a sign that shareholder interests are well considered. I discovered that the median total compensation for the CEOs of companies like Zhong Ao Home Group with market caps under CN¥1.3b is about CN¥1.5m.

The Zhong Ao Home Group CEO received total compensation of just CN¥700k in the year to . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. 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. It can also be a sign of a culture of integrity, in a broader sense.

Is Zhong Ao Home Group Worth Keeping An Eye On?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Zhong Ao Home Group's strong EPS growth. The fast growth bodes well while the very reasonable CEO pay assists builds some confidence in the board. So I'd argue this is the kind of stock worth watching, even if it isn't great value today. It's still necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Zhong Ao Home Group , and understanding them should be part of your investment process.

Although Zhong Ao Home Group certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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