Should You Be Adding BOE Varitronix (HKG:710) 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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like BOE Varitronix (HKG:710). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

See our latest analysis for BOE Varitronix

How Fast Is BOE Varitronix Growing Its Earnings Per Share?

In the last three years BOE Varitronix's 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. Thus, it makes sense to focus on more recent growth rates, instead. To the delight of shareholders, BOE Varitronix's EPS soared from HK$0.45 to HK$0.74, over the last year. That's a commendable gain of 63%.

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. BOE Varitronix maintained stable EBIT margins over the last year, all while growing revenue 39% to HK$11b. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for BOE Varitronix's future profits.

Are BOE Varitronix Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. 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.

Insiders in BOE Varitronix both added to and reduced their holdings over the preceding 12 months. All in all though, their acquisitions outweighed the amount of shares they sold off. When you weigh that up, it is a mild positive, indicating increased alignment between shareholders and management. It is also worth noting that it was CEO & Executive Director Ning Su who made the biggest single purchase, worth HK$1.3m, paying HK$12.79 per share.

On top of the insider buying, it's good to see that BOE Varitronix insiders have a valuable investment in the business. Holding HK$565m worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. This should keep them focused on creating long term value for shareholders.

Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. The cherry on top is that the CEO, Ning Su is paid comparatively modestly to CEOs at similar sized companies. Our analysis has discovered that the median total compensation for the CEOs of companies like BOE Varitronix with market caps between HK$7.8b and HK$25b is about HK$4.6m.

BOE Varitronix offered total compensation worth HK$3.6m to its CEO in the year to December 2022. That seems pretty reasonable, especially given it's below the median for similar sized companies. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is BOE Varitronix Worth Keeping An Eye On?

If you believe that share price follows earnings per share you should definitely be delving further into BOE Varitronix's strong EPS growth. Not only that, but we can see that insiders both own a lot of, and are buying more shares in the company. These things considered, this is one stock worth watching. It is worth noting though that we have found 2 warning signs for BOE Varitronix (1 shouldn't be ignored!) that you need to take into consideration.

Keen growth investors love to see insider buying. Thankfully, BOE Varitronix 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.