U.S. Markets closed

Should You Be Adding Sunfonda Group Holdings (HKG:1771) To Your Watchlist Today?

Simply Wall St

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 completely lacks a track record of revenue and profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Sunfonda Group Holdings (HKG:1771). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

Check out our latest analysis for Sunfonda Group Holdings

How Fast Is Sunfonda Group Holdings Growing Its Earnings Per Share?

In the last three years Sunfonda Group Holdings's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. Thus, it makes sense to focus on more recent growth rates, instead. Like a wedge-tailed eagle on the wind, Sunfonda Group Holdings's EPS soared from CN¥0.25 to CN¥0.36, in just one year. That's a impressive gain of 45%.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). While we note Sunfonda Group Holdings's EBIT margins were flat over the last year, revenue grew by a solid 16% to CN¥8.9b. That's progress.

In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.

SEHK:1771 Income Statement, August 6th 2019

Sunfonda Group Holdings isn't a huge company, given its market capitalization of CN¥588m. That makes it extra important to check on its balance sheet strength.

Are Sunfonda Group Holdings Insiders Aligned With All Shareholders?

As a general rule, I think it worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. For companies with market capitalizations under CN¥1.4b, like Sunfonda Group Holdings, the median CEO pay is around CN¥1.6m.

Sunfonda Group Holdings offered total compensation worth CN¥810k to its CEO in the year to December 2018. That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn't a huge factor in my view of the company, 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.

Should You Add Sunfonda Group Holdings To Your Watchlist?

For growth investors like me, Sunfonda Group Holdings's raw rate of earnings growth is a beacon in the night. The fast growth bodes well while the very reasonable CEO pay assists builds some confidence in the board. So I'd venture it may well deserve a spot on your watchlist, or even a little further research. Once you've identified a business you like, the next step is to consider what you think it's worth. And right now is your chance to view our exclusive discounted cashflow valuation of Sunfonda Group Holdings. You might benefit from giving it a glance today.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.