Does E Lighting Group Holdings (HKG:8222) Deserve A Spot On Your Watchlist?

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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

So if you're like me, you might be more interested in profitable, growing companies, like E Lighting Group Holdings (HKG:8222). 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. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

Check out our latest analysis for E Lighting Group Holdings

How Fast Is E Lighting Group Holdings Growing Its Earnings Per Share?

In a capitalist society capital chases profits, and that means share prices tend rise with earnings per share (EPS). So like a ray of sunshine through a gap in the clouds, improving EPS is considered a good sign. It is therefore awe-striking that E Lighting Group Holdings's EPS went from HK$0.0044 to HK$0.015 in just one year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement.

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. The good news is that E Lighting Group Holdings is growing revenues, and EBIT margins improved by 9.4 percentage points to 11%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

Since E Lighting Group Holdings is no giant, with a market capitalization of HK$19m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are E Lighting Group Holdings Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So as you can imagine, the fact that E Lighting Group Holdings insiders own a significant number of shares certainly appeals to me. Indeed, with a collective holding of 57%, 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. Of course, E Lighting Group Holdings is a very small company, with a market cap of only HK$19m. So despite a large proportional holding, insiders only have HK$11m worth of stock. That might not be a huge sum but it should be enough to keep insiders motivated!

Does E Lighting Group Holdings Deserve A Spot On Your Watchlist?

E Lighting Group Holdings's earnings have taken off like any random crypto-currency did, back in 2017. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So to my mind E Lighting Group Holdings is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. It is worth noting though that we have found 3 warning signs for E Lighting Group Holdings (1 is potentially serious!) that you need to take into consideration.

Although E Lighting Group Holdings 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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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.