With EPS Growth And More, JD Logistics (HKG:2618) Makes An Interesting Case

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 currently 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. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

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 JD Logistics (HKG:2618). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide JD Logistics with the means to add long-term value to shareholders.

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JD Logistics' Improving Profits

In business, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS) performance. So for many budding investors, improving EPS is considered a good sign. It is awe-striking that JD Logistics' EPS went from CN¥0.10 to CN¥1.01 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. JD Logistics shareholders can take confidence from the fact that EBIT margins are up from 0.3% to 3.3%, and revenue is growing. Ticking those two boxes is a good sign of growth, in our book.

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.

View our latest analysis for JD Logistics

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

Are JD Logistics Insiders Aligned With All Shareholders?

Since JD Logistics has a market capitalisation of HK$71b, we wouldn't expect insiders to hold a large percentage of shares. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. Indeed, they have a considerable amount of wealth invested in it, currently valued at CN¥819m. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.

Is JD Logistics Worth Keeping An Eye On?

JD Logistics' earnings per share have been soaring, with growth rates sky high. That sort of growth is nothing short of eye-catching, and the large investment held by insiders should certainly brighten the view of the company. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. So at the surface level, JD Logistics is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. Of course, just because JD Logistics is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio , as compared to its industry.

Although JD Logistics certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of Hong Kong companies that not only boast of strong growth but have strong insider backing.

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.