Should You Be Adding China Oil And Gas Group (HKG:603) 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.

In contrast to all that, many investors prefer to focus on companies like China Oil And Gas Group (HKG:603), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide China Oil And Gas Group with the means to add long-term value to shareholders.

Our analysis indicates that 603 is potentially undervalued!

How Fast Is China Oil And Gas Group Growing Its Earnings Per Share?

Strong earnings per share (EPS) results are an indicator of a company achieving solid profits, which investors look upon favourably and so the share price tends to reflect great EPS performance. So for many budding investors, improving EPS is considered a good sign. It's an outstanding feat for China Oil And Gas Group to have grown EPS from HK$0.03 to HK$0.24 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company. This could point to the business hitting a point of inflection.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. The music to the ears of China Oil And Gas Group shareholders is that EBIT margins have grown from 7.8% to 15% in the last 12 months and revenues are on an upwards trend as well. Both of which are great metrics to check off for potential growth.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

China Oil And Gas Group isn't a huge company, given its market capitalisation of HK$1.4b. That makes it extra important to check on its balance sheet strength.

Are China Oil And Gas Group Insiders Aligned With All Shareholders?

It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. Shareholders will be pleased by the fact that insiders own China Oil And Gas Group shares worth a considerable sum. Given insiders own a significant chunk of shares, currently valued at HK$478m, they have plenty of motivation to push the business to succeed. That holding amounts to 33% of the stock on issue, thus making insiders influential owners of the business and aligned with the interests of shareholders.

Should You Add China Oil And Gas Group To Your Watchlist?

China Oil And Gas Group's earnings per share growth have been climbing higher at an appreciable rate. 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. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. Based on the sum of its parts, we definitely think its worth watching China Oil And Gas Group very closely. You should always think about risks though. Case in point, we've spotted 1 warning sign for China Oil And Gas Group you should be aware of.

The beauty of investing is that you can invest in almost 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.