Do Orient Overseas (International)'s (HKG:316) Earnings Warrant Your Attention?

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

So if you're like me, you might be more interested in profitable, growing companies, like Orient Overseas (International) (HKG:316). 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.

See our latest analysis for Orient Overseas (International)

Orient Overseas (International)'s Improving Profits

In business, though not in life, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS). So like the hint of a smile on a face that I love, growing EPS generally makes me look twice. It is therefore awe-striking that Orient Overseas (International)'s EPS went from US$0.22 to US$5.47 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Orient Overseas (International) shareholders can take confidence from the fact that EBIT margins are up from 3.3% to 31%, and revenue is growing. That's great to see, on both counts.

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.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Orient Overseas (International) EPS 100% free.

Are Orient Overseas (International) Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a HK$154b company like Orient Overseas (International). But we are reassured by the fact they have invested in the company. Indeed, they hold US$125m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 0.08% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Should You Add Orient Overseas (International) To Your Watchlist?

Orient Overseas (International)'s earnings have taken off like any random crypto-currency did, back in 2017. That sort of growth is nothing short of eye-catching, and the large investment held by insiders certainly brightens my view of the company. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So to my mind Orient Overseas (International) is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. You still need to take note of risks, for example - Orient Overseas (International) has 4 warning signs (and 1 which is concerning) we think you should know about.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

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.