It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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 EVA Precision Industrial Holdings (HKG:838), which has not only revenues, but also profits. While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
See our latest analysis for EVA Precision Industrial Holdings
How Quickly Is EVA Precision Industrial Holdings Increasing Earnings Per Share?
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. It certainly is nice to see that EVA Precision Industrial Holdings has managed to grow EPS by 26% per year over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.
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. While we note EVA Precision Industrial Holdings achieved similar EBIT margins to last year, revenue grew by a solid 2.1% to HK$6.3b. That's a real positive.
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.
Since EVA Precision Industrial Holdings is no giant, with a market capitalisation of HK$1.2b, you should definitely check its cash and debt before getting too excited about its prospects.
Are EVA Precision Industrial Holdings Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
The good news is that EVA Precision Industrial Holdings insiders spent a whopping HK$15m on stock in just one year, without so much as a single sale. Buying like that is a fantastic look for the company and should rouse the market in anticipation for the future. We also note that it was the Co-Founder, Yaohua Zhang, who made the biggest single acquisition, paying HK$2.2m for shares at about HK$0.73 each.
On top of the insider buying, we can also see that EVA Precision Industrial Holdings insiders own a large chunk of the company. Actually, with 42% of the company to their names, insiders are profoundly invested in the business. Shareholders and speculators should be reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. With that sort of holding, insiders have about HK$504m riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!
Is EVA Precision Industrial Holdings Worth Keeping An Eye On?
You can't deny that EVA Precision Industrial Holdings has grown its earnings per share at a very impressive rate. That's attractive. Furthermore, company insiders have been adding to their significant stake in the company. Astute investors will want to keep this stock on watch. We don't want to rain on the parade too much, but we did also find 1 warning sign for EVA Precision Industrial Holdings that you need to be mindful of.
The good news is that EVA Precision Industrial Holdings is not the only stock with insider buying. Here's a list of small cap, undervalued companies in HK 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.
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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.