If EPS Growth Is Important To You, Zhongsheng Group Holdings (HKG:881) Presents An Opportunity

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Zhongsheng Group Holdings (HKG:881). 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.

Check out the opportunities and risks within the HK Specialty Retail industry.

How Quickly Is Zhongsheng Group Holdings Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That makes EPS growth an attractive quality for any company. Shareholders will be happy to know that Zhongsheng Group Holdings' EPS has grown 25% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Despite consistency in EBIT margins year on year, Zhongsheng Group Holdings has actually recorded a dip in revenue. While this may raise concerns, investors should investigate the reasoning behind this.

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

Fortunately, we've got access to analyst forecasts of Zhongsheng Group Holdings' future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Zhongsheng Group 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. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The good news is that Zhongsheng Group Holdings insiders spent a whopping CN¥15m on stock in just one year, without so much as a single sale. Buying like that is a fantastic look for the company and should rouse the market in anticipation for the future. Zooming in, we can see that the biggest insider purchase was by Co-Founder & Chairman Yi Huang for HK$10m worth of shares, at about HK$31.50 per share.

These recent buys aren't the only encouraging sign for shareholders, as a look at the shareholder registry for Zhongsheng Group Holdings will reveal that insiders own a significant piece of the pie. Actually, with 43% of the company to their names, insiders are profoundly invested in the business. Those who are comforted by solid insider ownership like this should be happy, as it implies that those running the business are genuinely motivated to create shareholder value. at the current share price. This is an incredible endorsement from them.

Is Zhongsheng Group Holdings Worth Keeping An Eye On?

For growth investors, Zhongsheng Group Holdings' raw rate of earnings growth is a beacon in the night. On top of that, insiders own a significant stake in the company and have been buying more shares. So it's fair to say that this stock may well deserve a spot on your watchlist. Of course, just because Zhongsheng Group Holdings is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

The good news is that Zhongsheng Group Holdings is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!

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.