The excitement of investing in a company that can turn its fortunes around is so attractive to some speculators that even companies with no revenue, no profits, and a track record of losses can manage to find investors. But the reality is that when a company loses money every year for long enough, its investors usually share those losses. A money-losing company has yet to prove itself profitably, and eventually the inflow of outside money may dry up.
Despite the blue-sky era of investing in tech stocks, many investors still employ a more traditional strategy; buying shares of profitable companies such as Leoch International Technology (Hong Kong stock: 842). Even if the market valuation of this company is reasonable, investors will agree that generating stable profits will continue to provide Leoch International Technology with the means to increase long-term value for shareholders.
Check out our latest analysis for Leoch International Technology
How Fast Is Leoch International Technology’s EPS Growing?
If you believed that markets were even vaguely efficient, you would expect a company’s stock price to follow its earnings per share (EPS) results over the long run. This means that EPS growth is viewed as a true positive by most successful long-term investors. In the past three years, Leoch International Technology’s earnings per share have grown by 15% per year. If the company can sustain it, that’s a pretty good ratio.
It is often helpful to look at earnings before interest and taxes (EBIT) margins, as well as revenue growth, to provide another perspective on the quality of a company’s growth. While we note that Leoch International Technology achieved a similar EBIT margin to last year, revenue grew steadily by 10% to RMB 12b. This is a real positive.
The chart below shows how a company’s bottom and top lines have progressed over time. To see actual numbers, click on the graph.
Since Leoch International Technology is not a giant with a market cap of HK$1.9b, you must check its cash and debt forward Get overly excited about its prospects.
Are Leoch International Technology Insiders aligned with all shareholders?
Investors are always looking for a vote of confidence in the companies they hold, and insider buying is one of the key indicators of market optimism. Because usually, buying a stock is a sign that buyers think it’s undervalued. However, insiders are sometimes wrong, and we don’t know the exact thinking behind their acquisitions.
Insider confidence in the company remains high, as no shares have been sold by management or members of the company’s board of directors. But what is really exciting is that founder and chairman Li Dong spent 1.2 million RMB to buy shares (average price is about 0.58 RMB). Purchases like this tell us about management’s confidence in the future of the business.
These recent acquisitions aren’t the only sign encouraging shareholders, as a check of Leoch International Technology’s register of shareholders reveals that insiders have a big slice of the pie. In fact, with a collective 74% stake, company insiders have taken control and have a lot of money behind the VCs. Intuition tells you this is a good sign, as it suggests they will be incentivized to create long-term shareholder value. With this shareholding, insiders hold about 140 million yuan in the stock at the current price. So there’s plenty to keep them focused!
Shareholders have more to smile about than just insiders accumulating more stakes in their already sizeable holdings. This is because the salary level of Yin Haiyan, CEO of Leoch International Technology, is relatively low compared with other CEOs of companies of the same size. The median total compensation for CEOs of companies similar in size to Leoch, with a market capitalization between RMB 690 million and RMB 280 million, is about RMB 2 million.
The CEO of Leoch International Technology received a total salary of 927,000 yuan in the year before December 2021. This appears to be a meager package that may imply a certain respect for shareholder interests. CEO compensation is hardly the most important aspect for a company to consider, but if justified, it would increase confidence that leadership is looking after shareholder interests. In general, it can be argued that reasonable pay levels demonstrate good decision-making.
Does Leoch International Technology deserve a spot on your watch list?
An important encouraging feature of Leoch International Technology is that its profits are growing. Even better, insiders are big shareholders and have been buying more shares. That makes the company a prime candidate for your watch list — and arguably a research priority.However, you should know 1 warning sign We discovered Leoch International Technology.
There are plenty of other companies that have insiders buying stock.So if you like the sound of Leoch International Technology, you might like this free A list of growth companies that insiders are buying.
Please note that insider trading discussed in this article refers to reportable transactions in the relevant jurisdictions.
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This article by Simply Wall St is general in nature. We use only an unbiased methodology to provide reviews based on historical data and analyst forecasts, 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 into account your objectives or your financial situation. Our goal is to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no positions in any of the stocks mentioned.