Here's Why I Think Zhongsheng Group Holdings (HKG:881) 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. 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 Zhongsheng Group Holdings (HKG:881). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

See our latest analysis for Zhongsheng Group Holdings

Zhongsheng Group Holdings's Earnings Per Share Are 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, Zhongsheng Group Holdings has grown EPS by 19% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

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 Zhongsheng Group Holdings's EBIT margins were flat over the last year, revenue grew by a solid 42% to CN¥178b. That's a real positive.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Zhongsheng Group Holdings's future profits.

Are Zhongsheng 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, small purchases are not always indicative of conviction, and insiders don't always get it right.

The first bit of good news is that no Zhongsheng Group Holdings insiders reported share sales in the last twelve months. Even better, though, is that the Independent Non-Executive Director, Yanwei Li, bought a whopping CN¥2.4m worth of shares, paying about CN¥59.58 per share, on average. Big buys like that give me a sense of opportunity; actions speak louder than words.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Zhongsheng Group Holdings insiders own more than a third of the company. Actually, with 47% of the company to their names, insiders are profoundly invested in the business. I'm always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. At the current share price, that insider holding is worth a whopping CN¥65b. That means they have plenty of their own capital riding on the performance of the business!

Does Zhongsheng Group Holdings Deserve A Spot On Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Zhongsheng Group Holdings's strong EPS growth. The cranberry sauce on the turkey is that insiders own a bunch of shares, and one has been buying more. So I do think this is one stock worth watching. We don't want to rain on the parade too much, but we did also find 1 warning sign for Zhongsheng Group Holdings that you need to be mindful of.

As a growth investor I do like to see insider buying. But Zhongsheng Group 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.