Should You Be Adding China Automotive Systems (NASDAQ:CAAS) To Your Watchlist Today?
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. 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.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in China Automotive Systems (NASDAQ:CAAS). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
View our latest analysis for China Automotive Systems
How Fast Is China Automotive Systems Growing Its Earnings Per Share?
In the last three years China Automotive Systems' earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. Thus, it makes sense to focus on more recent growth rates, instead. In impressive fashion, China Automotive Systems' EPS grew from US$0.18 to US$0.46, over the previous 12 months. It's not often a company can achieve year-on-year growth of 154%.
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. It seems China Automotive Systems is pretty stable, since revenue and EBIT margins are pretty flat year on year. That's not bad, but it doesn't point to ongoing future growth, either.
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 China Automotive Systems is no giant, with a market capitalisation of US$95m, you should definitely check its cash and debt before getting too excited about its prospects.
Are China Automotive Systems Insiders Aligned With All Shareholders?
Theory would suggest that it's an encouraging sign to see high insider ownership of a company, since it ties company performance directly to the financial success of its management. So we're pleased to report that China Automotive Systems insiders own a meaningful share of the business. Indeed, with a collective holding of 54%, company insiders are in control and have plenty of capital behind the venture. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. In terms of absolute value, insiders have US$51m invested in the business, at the current share price. That's nothing to sneeze at!
It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. Our quick analysis into CEO remuneration would seem to indicate they are. The median total compensation for CEOs of companies similar in size to China Automotive Systems, with market caps under US$200m is around US$753k.
The China Automotive Systems CEO received total compensation of just US$330k in the year to December 2021. First impressions seem to indicate a compensation policy that is favourable to shareholders. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.
Does China Automotive Systems Deserve A Spot On Your Watchlist?
China Automotive Systems' earnings have taken off in quite an impressive fashion. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The sharp increase in earnings could signal good business momentum. China Automotive Systems is certainly doing some things right and is well worth investigating. Still, you should learn about the 2 warning signs we've spotted with China Automotive Systems (including 1 which shouldn't be ignored).
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.
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