Do Karrie International Holdings's (HKG:1050) Earnings Warrant Your Attention?

By
Simply Wall St
Published
May 24, 2021
SEHK:1050
Source: Shutterstock

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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Karrie International Holdings (HKG:1050). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

Check out our latest analysis for Karrie International Holdings

Karrie International Holdings's Earnings Per Share Are Growing.

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. Karrie International Holdings managed to grow EPS by 11% per year, over three years. That's a pretty good rate, if the company can sustain it.

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. While we note Karrie International Holdings's EBIT margins were flat over the last year, revenue grew by a solid 6.2% to HK$2.9b. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
SEHK:1050 Earnings and Revenue History May 24th 2021

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Karrie International Holdings's balance sheet strength, before getting too excited.

Are Karrie International Holdings Insiders Aligned With All Shareholders?

It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. So it is good to see that Karrie International Holdings insiders have a significant amount of capital invested in the stock. With a whopping HK$723m worth of shares as a group, insiders have plenty riding on the company's success. At 21% of the company, the co-investment by insiders gives me confidence that management will make long-term focussed decisions.

Should You Add Karrie International Holdings To Your Watchlist?

One important encouraging feature of Karrie International Holdings is that it is growing profits. Just as polish makes silverware pop, the high level of insider ownership enhances my enthusiasm for this growth. That combination appeals to me, for one. So yes, I do think the stock is worth keeping an eye on. Still, you should learn about the 4 warning signs we've spotted with Karrie International Holdings (including 2 which can't be ignored) .

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access 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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Simply Wall St is focused on providing unbiased, high-quality research coverage on every listed company in the world. Our research team consists of data scientists and multiple equity analysts with over two decades worth of financial markets experience between them.