With EPS Growth And More, Wai Chi Holdings (HKG:1305) Is Interesting

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Wai Chi Holdings (HKG:1305). 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. 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.

View our latest analysis for Wai Chi Holdings

How Fast Is Wai Chi Holdings Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Wai Chi Holdings managed to grow EPS by 4.5% per year, over three years. While that sort of growth rate isn't amazing, it does show the business is growing.

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 Wai Chi Holdings's EBIT margins were flat over the last year, revenue grew by a solid 38% to HK$1.9b. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

Wai Chi Holdings isn't a huge company, given its market capitalization of HK$260m. That makes it extra important to check on its balance sheet strength.

Are Wai Chi Holdings Insiders Aligned With All Shareholders?

I always like to check up on CEO compensation, because I think that reasonable pay levels, around or below the median, can be a sign that shareholder interests are well considered. For companies with market capitalizations under HK$1.6b, like Wai Chi Holdings, the median CEO pay is around HK$1.8m.

Wai Chi Holdings offered total compensation worth HK$1.3m to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me 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?

As I already mentioned, Wai Chi Holdings is a growing business, which is what I like to see. On top of that, my faith in the board of directors is strengthened by the fact of the reasonable CEO pay. So I do think the stock deserves further research, if not instant addition to your watchlist. It is worth noting though that we have found 1 warning sign for Wai Chi Holdings that you need to take into consideration.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access 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.