The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
In contrast to all that, many investors prefer to focus on companies like Shanghai Chicmax Cosmetic (HKG:2145), 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 Shanghai Chicmax Cosmetic with the means to add long-term value to shareholders.
View our latest analysis for Shanghai Chicmax Cosmetic
How Fast Is Shanghai Chicmax Cosmetic Growing?
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. That means EPS growth is considered a real positive by most successful long-term investors. It certainly is nice to see that Shanghai Chicmax Cosmetic has managed to grow EPS by 37% per year over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Shanghai Chicmax Cosmetic shareholders can take confidence from the fact that EBIT margins are up from 3.3% to 13%, and revenue is growing. Both of which are great metrics to check off for potential growth.
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.
While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Shanghai Chicmax Cosmetic?
Are Shanghai Chicmax Cosmetic 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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
The good news is that Shanghai Chicmax Cosmetic insiders spent a whopping CN¥68m 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. It is also worth noting that it was Independent Non-Executive Director Yan Luo who made the biggest single purchase, worth HK$12m, paying HK$40.51 per share.
And the insider buying isn't the only sign of alignment between shareholders and the board, since Shanghai Chicmax Cosmetic insiders own more than a third of the company. Owning 41% of the company, insiders have plenty riding on the performance of the the share price. Shareholders and speculators should be reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. at the current share price. This is an incredible endorsement from them.
Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. The cherry on top is that the CEO, Yixiong Lyu is paid comparatively modestly to CEOs at similar sized companies. Our analysis has discovered that the median total compensation for the CEOs of companies like Shanghai Chicmax Cosmetic with market caps between CN¥7.3b and CN¥23b is about CN¥3.5m.
The CEO of Shanghai Chicmax Cosmetic only received CN¥676k in total compensation for the year ending December 2023. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.
Does Shanghai Chicmax Cosmetic Deserve A Spot On Your Watchlist?
For growth investors, Shanghai Chicmax Cosmetic's raw rate of earnings growth is a beacon in the night. Furthermore, company insiders have been adding to their significant stake in the company. Astute investors will want to keep this stock on watch. Before you take the next step you should know about the 1 warning sign for Shanghai Chicmax Cosmetic that we have uncovered.
The good news is that Shanghai Chicmax Cosmetic 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.