Stock Analysis

Should You Be Adding Wai Chi Holdings (HKG:1305) To Your Watchlist Today?

  •  Updated
SEHK:1305
Source: Shutterstock

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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 Wai Chi Holdings (HKG:1305). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

View our latest analysis for Wai Chi Holdings

How Quickly Is Wai Chi 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) outcomes. That means EPS growth is considered a real positive by most successful long-term investors. It certainly is nice to see that Wai Chi Holdings has managed to grow EPS by 21% per year 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.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note Wai Chi Holdings achieved similar EBIT margins to last year, revenue grew by a solid 28% to HK$2.1b. That's encouraging news for the company!

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:1305 Earnings and Revenue History September 26th 2022

Since Wai Chi Holdings is no giant, with a market capitalisation of HK$245m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Wai Chi Holdings Insiders Aligned With All Shareholders?

It's a good habit to check into a company's remuneration policies to ensure that the CEO and management team aren't putting their own interests before that of the shareholder with excessive salary packages. Our analysis has discovered that the median total compensation for the CEOs of companies like Wai Chi Holdings with market caps under HK$1.6b is about HK$1.9m.

The Wai Chi Holdings CEO received HK$1.2m in compensation for the year ending December 2021. That seems pretty reasonable, especially given it's below the median for similar sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.

Does Wai Chi Holdings Deserve A Spot On Your Watchlist?

For growth investors, Wai Chi Holdings' raw rate of earnings growth is a beacon in the night. Strong EPS growth is a great look for the company and reasonable CEO compensation sweetens the deal for investors ass it alludes to management being conscious of frivolous spending. So this stock is well worth an addition to your watchlist as it has the potential to provide great value to shareholders. You still need to take note of risks, for example - Wai Chi Holdings has 1 warning sign we think you should be aware of.

The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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.

Valuation is complex, but we're helping make it simple.

Find out whether Wai Chi Holdings is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis