Here's Why I Think China Yongda Automobiles Services Holdings (HKG:3669) Might Deserve Your Attention Today

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. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in China Yongda Automobiles Services Holdings (HKG:3669). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. 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.

Check out our latest analysis for China Yongda Automobiles Services Holdings

How Quickly Is China Yongda Automobiles Services Holdings Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. Over the last three years, China Yongda Automobiles Services Holdings has grown EPS by 10.0% per year. That's a pretty good rate, if the company can sustain it.

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 China Yongda Automobiles Services Holdings's EBIT margins were flat over the last year, revenue grew by a solid 32% to CN¥81b. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future China Yongda Automobiles Services Holdings EPS 100% free.

Are China Yongda Automobiles Services Holdings Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. 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.

We do note that, in the last year, insiders sold -CN¥19m worth of shares. But that's far less than the CN¥57m insiders spend purchasing stock. I find this encouraging because it suggests they are optimistic about the China Yongda Automobiles Services Holdings's future. It is also worth noting that it was Chairman of the Board of Directors Tak On Cheung who made the biggest single purchase, worth HK$12m, paying HK$11.91 per share.

On top of the insider buying, it's good to see that China Yongda Automobiles Services Holdings insiders have a valuable investment in the business. Notably, they have an enormous stake in the company, worth CN¥8.0b. Coming in at 33% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. So it might be my imagination, but I do sense the glimmer of an opportunity.

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Yingjie Cai, is paid less than the median for similar sized companies. I discovered that the median total compensation for the CEOs of companies like China Yongda Automobiles Services Holdings with market caps between CN¥13b and CN¥41b is about CN¥4.4m.

The CEO of China Yongda Automobiles Services Holdings only received CN¥1.4m in total compensation for the year ending . That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. 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. I'd also argue reasonable pay levels attest to good decision making more generally.

Is China Yongda Automobiles Services Holdings Worth Keeping An Eye On?

One positive for China Yongda Automobiles Services Holdings is that it is growing EPS. That's nice to see. Better yet, insiders are significant shareholders, and have been buying more shares. That makes the company a prime candidate for my watchlist - and arguably a research priority. We should say that we've discovered 3 warning signs for China Yongda Automobiles Services Holdings that you should be aware of before investing here.

As a growth investor I do like to see insider buying. But China Yongda Automobiles Services 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.

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.

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