I Ran A Stock Scan For Earnings Growth And Expert Systems Holdings (HKG:8319) Passed With Ease

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 Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Expert Systems Holdings (HKG:8319). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

See our latest analysis for Expert Systems Holdings

How Fast Is Expert Systems Holdings Growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Who among us would not applaud Expert Systems Holdings's stratospheric annual EPS growth of 47%, compound, over the last three years? While that sort of growth rate isn't sustainable for long, it certainly catches my attention; like a crow with a sparkly stone.

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. While we note Expert Systems Holdings's EBIT margins were flat over the last year, revenue grew by a solid 8.6% to HK$502m. That's a real positive.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

Since Expert Systems Holdings is no giant, with a market capitalization of HK$86m, 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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

We haven't seen any insiders selling Expert Systems Holdings 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. In fact, they own 71% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes me think they will be incentivised to plan for the long term - something I like to see. Of course, Expert Systems Holdings is a very small company, with a market cap of only HK$86m. That means insiders only have HK$61m worth of shares, despite the large proportional holding. 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 per share have taken off like a rocket aimed right at the moon. 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 should always think about risks though. Case in point, we've spotted 2 warning signs for Expert Systems Holdings you should be aware of.

As a growth investor I do like to see insider buying. But Expert Systems Holdings isn't the only one. You can see a 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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