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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Anchorstone Holdings (HKG:1592). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
How Fast Is Anchorstone Holdings Growing Its Earnings Per Share?
Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So EPS growth can certainly encourage an investor to take note of a stock. Like a falcon taking flight, Anchorstone Holdings's EPS soared from HK$0.018 to HK$0.024, over the last year. That's a impressive gain of 36%.
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). On the one hand, Anchorstone Holdings's EBIT margins fell over the last year, but on the other hand, revenue grew. So it seems the future my hold further growth, especially if EBIT margins can stabilize.
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 Anchorstone Holdings is no giant, with a market capitalization of HK$318m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Anchorstone Holdings Insiders Aligned With All Shareholders?
Personally, I like to see high insider ownership of a company, since it suggests that it will be managed in the interests of shareholders. So as you can imagine, the fact that Anchorstone Holdings insiders own a significant number of shares certainly appeals to me. Indeed, with a collective holding of 70%, company insiders are in control and have plenty of capital behind the venture. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. With that sort of holding, insiders have about HK$224m riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!
Should You Add Anchorstone Holdings To Your Watchlist?
You can't deny that Anchorstone Holdings has grown its earnings per share at a very impressive rate. That's attractive. I think that EPS growth is something to boast of, and it doesn't surprise me that insiders are holding on to a considerable chunk of shares. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Anchorstone Holdings is trading on a high P/E or a low P/E, relative to its industry.
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
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