Stock Analysis

With EPS Growth And More, China Resources Power Holdings (HKG:836) Is Interesting

SEHK:836
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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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in China Resources Power Holdings (HKG:836). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. 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.

Check out our latest analysis for China Resources Power Holdings

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How Quickly Is China Resources Power Holdings Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. As a tree reaches steadily for the sky, China Resources Power Holdings's EPS has grown 18% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

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). China Resources Power Holdings maintained stable EBIT margins over the last year, all while growing revenue 2.7% to HK$70b. That's a real positive.

In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.

earnings-and-revenue-history
SEHK:836 Earnings and Revenue History July 27th 2021

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 China Resources Power Holdings EPS 100% free.

Are China Resources Power Holdings Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

First things first; I didn't see insiders sell China Resources Power Holdings shares in the last year. Even better, though, is that the Independent Non-Executive Director, Chak-Kwong So, bought a whopping HK$4.3m worth of shares, paying about HK$10.64 per share, on average. Big buys like that give me a sense of opportunity; actions speak louder than words.

I do like that insiders have been buying shares in China Resources Power Holdings, but there is more evidence of shareholder friendly management. I refer to the very reasonable level of CEO pay. I discovered that the median total compensation for the CEOs of companies like China Resources Power Holdings with market caps between HK$31b and HK$93b is about HK$4.8m.

The China Resources Power Holdings CEO received total compensation of just HK$2.4m in the year to . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.

Should You Add China Resources Power Holdings To Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about China Resources Power Holdings's strong EPS growth. But wait, it gets better. We have seen insider buying and the executive pay seems on the modest side of things. On balance the message seems to be that this stock is worth looking at, at least for a while. However, before you get too excited we've discovered 2 warning signs for China Resources Power Holdings (1 doesn't sit too well with us!) that you should be aware of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of China Resources Power Holdings, you'll probably love this free list of growing companies that insiders are buying.

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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