Does Modern Living Investments Holdings (HKG:8426) Deserve A Spot On Your Watchlist?

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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Modern Living Investments Holdings (HKG:8426). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

See our latest analysis for Modern Living Investments Holdings

Modern Living Investments Holdings' Earnings Per Share Are Growing

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. To the delight of shareholders, Modern Living Investments Holdings has achieved impressive annual EPS growth of 38%, compound, over the last three years. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.

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. We note that while EBIT margins have improved from 3.4% to 5.7%, the company has actually reported a fall in revenue by 3.7%. While not disastrous, these figures could be better.

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.

Since Modern Living Investments Holdings is no giant, with a market capitalisation of HK$130m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Modern Living Investments Holdings Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Modern Living Investments Holdings top brass are certainly in sync, not having sold any shares, over the last year. But the real excitement comes from the HK$881k that CEO, Company Secretary & Executive Director Fuk Wah Ng spent buying shares (at an average price of about HK$0.15). Strong buying like that could be a sign of opportunity.

It's reassuring that Modern Living Investments Holdings insiders are buying the stock, but that's not the only reason to think management are fair to shareholders. Namely, Modern Living Investments Holdings has a very reasonable level of CEO pay. For companies with market capitalisations under HK$1.6b, like Modern Living Investments Holdings, the median CEO pay is around HK$1.9m.

Modern Living Investments Holdings offered total compensation worth HK$1.0m to its CEO in the year to December 2021. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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.

Does Modern Living Investments Holdings Deserve A Spot On Your Watchlist?

Modern Living Investments Holdings' earnings have taken off in quite an impressive fashion. The company can also boast of insider buying, and reasonable remuneration for the CEO. It could be that Modern Living Investments Holdings is at an inflection point, given the EPS growth. If so, then its potential for further gains probably merit a spot on your watchlist. You still need to take note of risks, for example - Modern Living Investments Holdings has 2 warning signs we think you should be aware of.

Keen growth investors love to see insider buying. Thankfully, Modern Living Investments Holdings isn't the only one. You can see a a free list of them here.

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.