Is Now The Time To Put Digital China Holdings (HKG:861) On Your Watchlist?

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.

So if you're like me, you might be more interested in profitable, growing companies, like Digital China Holdings (HKG:861). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

Check out our latest analysis for Digital China Holdings

Digital China Holdings's Improving Profits

In a capitalist society capital chases profits, and that means share prices tend rise with earnings per share (EPS). So like the hint of a smile on a face that I love, growing EPS generally makes me look twice. You can imagine, then, that it almost knocked my socks off when I realized that Digital China Holdings grew its EPS from HK$0.0078 to HK$0.33, in one short year. When you see earnings grow that quickly, it often means good things ahead for the company. Could this be a sign that the business has reached an inflection point?

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 Digital China Holdings's EBIT margins were flat over the last year, revenue grew by a solid 17% to HK$19b. 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.

Fortunately, we've got access to analyst forecasts of Digital China Holdings's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Digital China Holdings Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

One gleaming positive for Digital China Holdings, in the last year, is that a certain insider has buying shares with ample enthusiasm. In one fell swoop, Chairman & CEO Wei Guo, spent HK$1.3m, at a price of HK$6.64 per share. It doesn't get much better than that, in terms of large investments from insiders.

The good news, alongside the insider buying, for Digital China Holdings bulls is that insiders (collectively) have a meaningful investment in the stock. Notably, they have an enormous stake in the company, worth HK$2.0b. That equates to 19% of the company, making insiders powerful and aligned with other shareholders. Very encouraging.

Is Digital China Holdings Worth Keeping An Eye On?

Digital China Holdings's earnings per share have taken off like a rocket aimed right at the moon. The cherry on top is that insiders own a bunch of shares, and one has been buying more. Because of the potential that it has reached an inflection point, I'd suggest Digital China Holdings belongs on the top of your watchlist. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Digital China Holdings , and understanding it should be part of your investment process.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Digital China Holdings, you'll probably love this free list of growing companies that insiders are buying.

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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