Here's Why We Think Longfor Group Holdings (HKG:960) Is Well Worth Watching

By
Simply Wall St
Published
January 24, 2022
SEHK:960
Source: Shutterstock

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Longfor Group Holdings (HKG:960). 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.

Check out our latest analysis for Longfor Group Holdings

Longfor Group Holdings's Earnings Per Share Are Growing.

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, Longfor Group Holdings has grown EPS by 14% per year. That's a good rate of growth, if it can be sustained.

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 Longfor Group Holdings did well to grow revenue over the last year, EBIT margins were dampened at the same time. So if EBIT margins can stabilize, this top-line growth should pay off for shareholders.

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.

earnings-and-revenue-history
SEHK:960 Earnings and Revenue History January 24th 2022

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Longfor Group Holdings's forecast profits?

Are Longfor Group Holdings Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Although we did see some insider selling (worth -CN¥123m) this was overshadowed by a mountain of buying, totalling CN¥160m in just one year. I find this encouraging because it suggests they are optimistic about the Longfor Group Holdings's future. We also note that it was the , Kwong Ching Woo, who made the biggest single acquisition, paying HK$70m for shares at about HK$41.25 each.

On top of the insider buying, we can also see that Longfor Group Holdings insiders own a large chunk of the company. Indeed, with a collective holding of 52%, company insiders are in control and have plenty of capital behind the venture. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. At the current share price, that insider holding is worth a whopping CN¥143b. That means they have plenty of their own capital riding on the performance of the business!

Is Longfor Group Holdings Worth Keeping An Eye On?

One positive for Longfor Group Holdings is that it is growing EPS. That's nice 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. It's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Longfor Group Holdings (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Longfor Group 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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