Here's Why Euro Tech Holdings (NASDAQ:CLWT) Has Caught The Eye Of Investors

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 currently 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.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

In contrast to all that, many investors prefer to focus on companies like Euro Tech Holdings (NASDAQ:CLWT), 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 Euro Tech Holdings with the means to add long-term value to shareholders.

See our latest analysis for Euro Tech Holdings

How Fast Is Euro Tech Holdings Growing Its Earnings Per Share?

Over the last three years, Euro Tech Holdings has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. As a result, we'll zoom in on growth over the last year, instead. Euro Tech Holdings' EPS skyrocketed from US$0.099 to US$0.13, in just one year; a result that's bound to bring a smile to shareholders. That's a fantastic gain of 29%.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. The good news is that Euro Tech Holdings is growing revenues, and EBIT margins improved by 16.3 percentage points to 3.7%, over the last year. Ticking those two boxes is a good sign of growth, in our book.

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.

Since Euro Tech Holdings is no giant, with a market capitalisation of US$10m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Euro Tech Holdings Insiders Aligned With All Shareholders?

Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price. So those who are interested in Euro Tech Holdings will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. In fact, they own 56% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. Of course, Euro Tech Holdings is a very small company, with a market cap of only US$10m. That means insiders only have US$5.8m worth of shares, despite the large proportional holding. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. Well, based on the CEO pay, you'd argue that they are indeed. Our analysis has discovered that the median total compensation for the CEOs of companies like Euro Tech Holdings with market caps under US$200m is about US$768k.

The Euro Tech Holdings CEO received total compensation of just US$147k in the year to December 2021. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of good governance, more generally.

Is Euro Tech Holdings Worth Keeping An Eye On?

You can't deny that Euro Tech Holdings has grown its earnings per share at a very impressive rate. That's attractive. If that's not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. This may only be a fast rundown, but the key takeaway is that Euro Tech Holdings is worth keeping an eye on. You still need to take note of risks, for example - Euro Tech Holdings has 2 warning signs we think you should be aware of.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you 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. 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.