Here's Why I Think Expert Systems Holdings (HKG:8319) Might Deserve Your Attention 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. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

In contrast to all that, I prefer to spend time on companies like Expert Systems Holdings (HKG:8319), which has not only revenues, but also profits. While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

Check out our latest analysis for Expert Systems Holdings

Expert Systems Holdings's Improving Profits

Over the last three years, Expert Systems Holdings has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. Thus, it makes sense to focus on more recent growth rates, instead. Like a firecracker arcing through the night sky, Expert Systems Holdings's EPS shot from HK$0.014 to HK$0.024, over the last year. You don't see 72% year-on-year growth like that, very often.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Expert Systems Holdings maintained stable EBIT margins over the last year, all while growing revenue 8.7% to HK$520m. That's progress.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

Since Expert Systems Holdings is no giant, with a market capitalization of HK$107m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Expert Systems Holdings Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The good news for Expert Systems Holdings shareholders is that no insiders reported selling shares in the last year. So it's definitely nice that Chairman Chu Kee Wong bought HK$200k worth of shares at an average price of around HK$0.10.

On top of the insider buying, we can also see that Expert Systems Holdings insiders own a large chunk of the company. Indeed, with a collective holding of 71%, company insiders are in control and have plenty of capital behind the venture. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. Of course, Expert Systems Holdings is a very small company, with a market cap of only HK$107m. So despite a large proportional holding, insiders only have HK$76m worth of stock. That might not be a huge sum but it should be enough to keep insiders motivated!

Does Expert Systems Holdings Deserve A Spot On Your Watchlist?

Expert Systems Holdings's earnings have taken off like any random crypto-currency did, back in 2017. The incing on the cake is that insiders own a large chunk of the company and one has even been buying more shares. Because of the potential that it has reached an inflection point, I'd suggest Expert Systems Holdings belongs on the top of your watchlist. You still need to take note of risks, for example - Expert Systems Holdings has 3 warning signs we think you should be aware of.

The good news is that Expert Systems Holdings is not the only growth stock with insider buying. Here's a list of them... 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. 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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