Should You Be Adding Chinasoft International (HKG:354) To Your Watchlist Today?

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 completely 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.'

So if you're like me, you might be more interested in profitable, growing companies, like Chinasoft International (HKG:354). 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. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

View our latest analysis for Chinasoft International

How Fast Is Chinasoft International Growing?

As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. As a tree reaches steadily for the sky, Chinasoft International's EPS has grown 17% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. While we note Chinasoft International's EBIT margins were flat over the last year, revenue grew by a solid 17% to CN¥14b. That's a real positive.

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.

While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Chinasoft International?

Are Chinasoft International Insiders Aligned With All Shareholders?

Since Chinasoft International has a market capitalization of HK$40b, we wouldn't expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. Indeed, they have a glittering mountain of wealth invested in it, currently valued at CN¥4.2b. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!

Should You Add Chinasoft International To Your Watchlist?

You can't deny that Chinasoft International has grown its earnings per share at a very impressive rate. That's attractive. I think that EPS growth is something to boast of, and it doesn't surprise me that insiders are holding on to a considerable chunk of shares. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. Even so, be aware that Chinasoft International is showing 2 warning signs in our investment analysis , you should know about...

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. 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.
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