Should You Be Adding Digital China Holdings (HKG:861) To Your Watchlist Today?

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Digital China Holdings (HKG:861). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Digital China Holdings with the means to add long-term value to shareholders.

See our latest analysis for Digital China Holdings

How Fast Is Digital China Holdings Growing Its Earnings Per Share?

In the last three years Digital China Holdings' earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. So it would be better to isolate the growth rate over the last year for our analysis. Digital China Holdings boosted its trailing twelve month EPS from HK$0.37 to HK$0.43, in the last year. That's a 14% gain; respectable growth in the broader scheme of things.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. While we note Digital China Holdings achieved similar EBIT margins to last year, revenue grew by a solid 2.0% to HK$21b. That's encouraging news for the company!

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

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Digital China Holdings?

Are Digital China Holdings Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

In twelve months, insiders sold HK$34m worth of Digital China Holdings shares. On a brighter note, we see that Chairman & CEO Wei Guo paid HK$34m for shares, at an average acquisition price of HK$3.62 per share. Overall, that is something good to take away.

Along with the insider buying, another encouraging sign for Digital China Holdings is that insiders, as a group, have a considerable shareholding. Notably, they have an enviable stake in the company, worth HK$1.5b. That equates to 21% of the company, making insiders powerful and aligned with other shareholders. So there is opportunity here to invest in a company whose management have tangible incentives to deliver.

Should You Add Digital China Holdings To Your Watchlist?

As previously touched on, Digital China Holdings is a growing business, which is encouraging. Better yet, insiders are significant shareholders, and have been buying more shares. That makes the company a prime candidate for your watchlist - and arguably a research priority. You still need to take note of risks, for example - Digital China Holdings has 2 warning signs we think you should be aware of.

Keen growth investors love to see insider buying. Thankfully, Digital China 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. 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.