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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 Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Greenland Hong Kong Holdings (HKG:337). While profit is not necessarily a social good, it's easy to admire a business than can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
Greenland Hong Kong Holdings's Improving Profits
In the last three years Greenland Hong Kong 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. As a result, I'll zoom in on growth over the last year, instead. Like a falcon taking flight, Greenland Hong Kong Holdings's EPS soared from CN¥0.46 to CN¥0.61, over the last year. That's a impressive gain of 33%.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note Greenland Hong Kong Holdings's EBIT margins were flat over the last year, revenue grew by a solid 5.6% to CN¥15b. That's progress.
The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Greenland Hong Kong Holdings's balance sheet strength, before getting too excited.
Are Greenland Hong Kong Holdings Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
One gleaming positive for Greenland Hong Kong Holdings, in the last year, is that a certain insider has buying shares with ample enthusiasm. Specifically, in one large transaction Founder Weixian Wang paid HK$5.9m, for stock at HK$2.94 per share. Big insider buys like that are almost as rare as an ocean free of single use plastic waste.
Along with the insider buying, another encouraging sign for Greenland Hong Kong Holdings is that insiders, as a group, have a considerable shareholding. Notably, they have an enormous stake in the company, worth CN¥928m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!
Should You Add Greenland Hong Kong Holdings To Your Watchlist?
You can't deny that Greenland Hong Kong Holdings has grown its earnings per share at a very impressive rate. That's attractive. Better still, insiders own a large chunk of the company and one has even been buying more shares. So I do think this is one stock worth watching. Of course, identifying quality businesses is only half the battle; investors need to know whether the stock is undervalued. So you might want to consider this free discounted cashflow valuation of Greenland Hong Kong Holdings.
As a growth investor I do like to see insider buying. But Greenland Hong Kong Holdings isn't the only one. You can see a 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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