Is Now The Time To Put Kantone Holdings (HKG:1059) On Your Watchlist?

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Kantone Holdings (HKG:1059). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Kantone Holdings with the means to add long-term value to shareholders.

Check out our latest analysis for Kantone Holdings

How Fast Is Kantone Holdings Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. Impressively, Kantone Holdings has grown EPS by 25% per year, compound, in the last three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

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 Kantone Holdings is growing revenues, and EBIT margins improved by 5.9 percentage points to 7.2%, over the last year. Both of which are great metrics to check off for potential growth.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

Kantone Holdings isn't a huge company, given its market capitalisation of HK$82m. That makes it extra important to check on its balance sheet strength.

Are Kantone Holdings Insiders Aligned With All Shareholders?

Theory would suggest that it's an encouraging sign to see high insider ownership of a company, since it ties company performance directly to the financial success of its management. So those who are interested in Kantone Holdings will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. To be exact, company insiders hold 52% of the company, so their decisions have a significant impact on their investments. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. Valued at only HK$82m Kantone Holdings is really small for a listed company. So this large proportion of shares owned by insiders only amounts to HK$43m. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

Should You Add Kantone Holdings To Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Kantone Holdings' strong EPS growth. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in Kantone Holdings' continuing strength. Fast growth and confident insiders should be enough to warrant further research, so it would seem that it's a good stock to follow. Before you take the next step you should know about the 2 warning signs for Kantone Holdings that we have uncovered.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of Hong Kong companies which have demonstrated growth backed by recent insider purchases.

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.