Stock Analysis

Is Now The Time To Put Hsin Yung Chien (TPE:2114) On Your Watchlist?

TWSE:2114
Source: Shutterstock

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 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.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Hsin Yung Chien (TPE:2114). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

Check out our latest analysis for Hsin Yung Chien

Hsin Yung Chien's Earnings Per Share Are 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. Over the last three years, Hsin Yung Chien has grown EPS by 16% per year. That's a good rate of growth, if it can be sustained.

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). Hsin Yung Chien's EBIT margins have actually improved by 4.4 percentage points in the last year, to reach 32%, but, on the flip side, revenue was down 3.8%. That's not ideal.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
TSEC:2114 Earnings and Revenue History March 29th 2021

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Hsin Yung Chien's balance sheet strength, before getting too excited.

Are Hsin Yung Chien Insiders Aligned With All Shareholders?

It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. So it is good to see that Hsin Yung Chien insiders have a significant amount of capital invested in the stock. With a whopping NT$1.9b worth of shares as a group, insiders have plenty riding on the company's success. At 20% of the company, the co-investment by insiders gives me confidence that management will make long-term focussed decisions.

Is Hsin Yung Chien Worth Keeping An Eye On?

One important encouraging feature of Hsin Yung Chien is that it is growing profits. Just as polish makes silverware pop, the high level of insider ownership enhances my enthusiasm for this growth. The combination sparks joy for me, so I'd consider keeping the company on a watchlist. Even so, be aware that Hsin Yung Chien is showing 2 warning signs in our investment analysis , 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.

If you decide to trade Hsin Yung Chien, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted


Valuation is complex, but we're helping make it simple.

Find out whether Hsin Yung Chien is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020


Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.