With EPS Growth And More, Shanghai Fudan Microelectronics Group (HKG:1385) Makes An Interesting Case

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. 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.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing 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.

See 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. As a result, we'll zoom in on growth over the last year, instead. Outstandingly, Shanghai Fudan Microelectronics Group's EPS shot from CN¥0.38 to CN¥1.04, over the last year. It's not often a company can achieve year-on-year growth of 172%. The best case scenario? That the business has hit a true inflection point.

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. The good news is that Shanghai Fudan Microelectronics Group is growing revenues, and EBIT margins improved by 7.3 percentage points to 26%, over the last year. Ticking those two boxes is a good sign of growth, in our book.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Shanghai Fudan Microelectronics Group.

Are Shanghai Fudan Microelectronics Group Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a HK$55b company like Shanghai Fudan Microelectronics Group. But we do take comfort from the fact that they are investors in the company. Notably, they have an enviable stake in the company, worth CN¥1.4b. This suggests that leadership will be very mindful of shareholders' interests when making decisions!

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, you'd argue that they are indeed. For companies with market capitalisations between CN¥27b and CN¥82b, like Shanghai Fudan Microelectronics Group, the median CEO pay is around CN¥5.7m.

Shanghai Fudan Microelectronics Group offered total compensation worth CN¥3.6m to its CEO in the year to December 2021. That comes in below the average for similar sized companies and seems pretty reasonable. 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.

Should You Add Shanghai Fudan Microelectronics Group To Your Watchlist?

Shanghai Fudan Microelectronics Group's earnings per share growth have been climbing higher at an appreciable rate. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. 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. Before you take the next step you should know about the 1 warning sign for Shanghai Fudan Microelectronics Group that we have uncovered.

Although Shanghai Fudan Microelectronics Group certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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.