I Ran A Stock Scan For Earnings Growth And Lian Hwa Foods (TPE:1231) Passed With Ease

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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

So if you're like me, you might be more interested in profitable, growing companies, like Lian Hwa Foods (TPE:1231). 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.

See our latest analysis for Lian Hwa Foods

Lian Hwa Foods's Earnings Per Share Are Growing.

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. It's no surprise, then, that I like to invest in companies with EPS growth. Lian Hwa Foods managed to grow EPS by 15% per year, over three years. That growth rate is fairly good, assuming the company can keep it up.

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 Lian Hwa Foods is growing revenues, and EBIT margins improved by 2.1 percentage points to 8.4%, over the last year. That's great to see, on both counts.

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.

Lian Hwa Foods isn't a huge company, given its market capitalization of NT$8.1b. That makes it extra important to check on its balance sheet strength.

Are Lian Hwa Foods 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 Lian Hwa Foods insiders have a significant amount of capital invested in the stock. To be specific, they have NT$883m worth of shares. That's a lot of money, and no small incentive to work hard. That amounts to 11% of the company, demonstrating a degree of high-level alignment with shareholders.

Does Lian Hwa Foods Deserve A Spot On Your Watchlist?

One important encouraging feature of Lian Hwa Foods is that it is growing profits. Just as polish makes silverware pop, the high level of insider ownership enhances my enthusiasm for this growth. That combination appeals to me, for one. So yes, I do think the stock is worth keeping an eye on. What about risks? Every company has them, and we've spotted 2 warning signs for Lian Hwa Foods you should know about.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access 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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