It’s only natural that many investors, especially those who are new to the game, prefer to buy shares in ‘sexy’ stocks with a good story, even if those businesses lose money. 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 Hollysys Automation Technologies (NASDAQ:HOLI). While that doesn’t make the shares worth buying at any price, you can’t deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital – but unlike such a sponge they do not always produce something when squeezed.
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How Fast Is Hollysys Automation Technologies Growing?
As one of my mentors once told me, share price follows 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, Hollysys Automation Technologies has grown EPS by 6.4% per year. While that sort of growth rate isn’t amazing, it does show the business is growing.
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. Hollysys Automation Technologies maintained stable EBIT margins over the last year, all while growing revenue 5.5% to US$561m. That’s progress.
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.
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 Hollysys Automation Technologies EPS 100% free.
Are Hollysys Automation Technologies Insiders Aligned With All Shareholders?
I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. As a result, I’m encouraged by the fact that insiders own Hollysys Automation Technologies shares worth a considerable sum. With a whopping US$91m worth of shares as a group, insiders have plenty riding on the company’s success. That holding amounts to 8.1% of the stock on issue, thus making insiders influential, and aligned, owners of the business.
Does Hollysys Automation Technologies Deserve A Spot On Your Watchlist?
As I already mentioned, Hollysys Automation Technologies is a growing business, which is what I like to see. If that’s not enough on its own, there is also the rather notable levels of insider ownership. That combination appeals to me, for one. So yes, I do think the stock is worth keeping an eye on. Of course, identifying quality businesses is only half the battle; investors need to know whether the stock is undervalued. So you might want to consider this free discounted cashflow valuation of Hollysys Automation Technologies.
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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