Here's Why We Think EFT Solutions Holdings (HKG:8062) Is Well Worth Watching

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

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 EFT Solutions Holdings (HKG:8062). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide EFT Solutions Holdings with the means to add long-term value to shareholders.

Check out our latest analysis for EFT Solutions Holdings

EFT Solutions Holdings' Improving Profits

Over the last three years, EFT Solutions Holdings has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. So it would be better to isolate the growth rate over the last year for our analysis. Outstandingly, EFT Solutions Holdings' EPS shot from HK$0.022 to HK$0.04, over the last year. It's a rarity to see 85% year-on-year growth like that.

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 music to the ears of EFT Solutions Holdings shareholders is that EBIT margins have grown from 13% to 20% in the last 12 months and revenues are on an upwards trend as well. 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. For finer detail, click on the image.

EFT Solutions Holdings isn't a huge company, given its market capitalisation of HK$110m. That makes it extra important to check on its balance sheet strength.

Are EFT Solutions 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 as you can imagine, the fact that EFT Solutions Holdings insiders own a significant number of shares certainly is appealing. In fact, they own 73% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. Although, with EFT Solutions Holdings being valued at HK$110m, this is a small company we're talking about. So despite a large proportional holding, insiders only have HK$81m worth of stock. That might not be a huge sum but it should be enough to keep insiders motivated!

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. Our analysis has discovered that the median total compensation for the CEOs of companies like EFT Solutions Holdings with market caps under HK$1.6b is about HK$1.8m.

The EFT Solutions Holdings CEO received HK$1.6m in compensation for the year ending March 2023. That comes in below the average for similar sized companies and seems pretty reasonable. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.

Does EFT Solutions Holdings Deserve A Spot On Your Watchlist?

EFT Solutions Holdings' 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. EFT Solutions Holdings is certainly doing some things right and is well worth investigating. Still, you should learn about the 3 warning signs we've spotted with EFT Solutions Holdings (including 1 which makes us a bit uncomfortable).

Although EFT Solutions Holdings 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.