Here's Why We Think China International Holdings (SGX:BEH) Is Well Worth Watching

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like China International Holdings (SGX:BEH). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

View our latest analysis for China International Holdings

How Fast Is China International Holdings Growing?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Who among us would not applaud China International Holdings's stratospheric annual EPS growth of 43%, compound, over the last three years? Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.

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 good news is that China International Holdings is growing revenues, and EBIT margins improved by 37.6 percentage points to 27%, over the last year. Ticking those two boxes is a good sign of growth, in my 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.

China International Holdings isn't a huge company, given its market capitalization of S$24m. That makes it extra important to check on its balance sheet strength.

Are China International Holdings Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

The good news for China International Holdings shareholders is that no insiders reported selling shares in the last year. So it's definitely nice that Tatkwong Lee bought CN¥14k worth of shares at an average price of around CN¥0.38.

On top of the insider buying, we can also see that China International Holdings insiders own a large chunk of the company. Indeed, with a collective holding of 52%, company insiders are in control and have plenty of capital behind the venture. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. Of course, China International Holdings is a very small company, with a market cap of only S$24m. That means insiders only have CN¥12m worth of shares, despite the large proportional holding. That might not be a huge sum but it should be enough to keep insiders motivated!

Should You Add China International Holdings To Your Watchlist?

China International Holdings's earnings per share have taken off like a rocket aimed right at the moon. The cherry on top is that insiders own a bunch of shares, and one has been buying more. Because of the potential that it has reached an inflection point, I'd suggest China International Holdings belongs on the top of your watchlist. You still need to take note of risks, for example - China International Holdings has 4 warning signs (and 1 which shouldn't be ignored) we think you should know about.

As a growth investor I do like to see insider buying. But China International Holdings 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. 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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