Here's Why We Think Shanghai Fudan Microelectronics Group (HKG:1385) Might Deserve Your Attention Today

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

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 Shanghai Fudan Microelectronics Group (HKG:1385). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Shanghai Fudan Microelectronics Group with the means to add long-term value to shareholders.

Check out our latest analysis for Shanghai Fudan Microelectronics Group

How Fast Is Shanghai Fudan Microelectronics Group Growing Its Earnings Per Share?

In the last three years Shanghai Fudan Microelectronics Group's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. Thus, it makes sense to focus on more recent growth rates, instead. In impressive fashion, Shanghai Fudan Microelectronics Group's EPS grew from CN¥0.69 to CN¥1.32, over the previous 12 months. Year on year growth of 92% is certainly a sight to behold. Shareholders will be hopeful that this is a sign of the company reaching an inflection point.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Shanghai Fudan Microelectronics Group shareholders can take confidence from the fact that EBIT margins are up from 20% to 32%, and revenue is growing. Both of which are great metrics to check off for potential growth.

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

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Shanghai Fudan Microelectronics Group's forecast profits?

Are Shanghai Fudan Microelectronics Group Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a HK$53b company like Shanghai Fudan Microelectronics Group. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. Indeed, they have a considerable amount of wealth invested in it, currently valued at CN¥1.2b. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. Well, based on the CEO pay, you'd argue that they are indeed. Our analysis has discovered that the median total compensation for the CEOs of companies like Shanghai Fudan Microelectronics Group with market caps between CN¥27b and CN¥82b is about CN¥5.4m.

Shanghai Fudan Microelectronics Group's CEO took home a total compensation package worth CN¥3.6m in the year leading up to December 2021. That seems pretty reasonable, especially given it's below the median for similar sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Does Shanghai Fudan Microelectronics Group Deserve A Spot On Your Watchlist?

Shanghai Fudan Microelectronics Group's earnings per share have been soaring, with growth rates sky high. An added bonus for those interested is that management hold a heap of stock and the CEO pay is quite reasonable, illustrating good cash management. The strong EPS improvement suggests the businesses is humming along. Shanghai Fudan Microelectronics Group is certainly doing some things right and is well worth investigating. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Shanghai Fudan Microelectronics Group is trading on a high P/E or a low P/E, relative to its industry.

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.

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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.