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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like C-MER Eye Care Holdings (HKG:3309). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
How Fast Is C-MER Eye Care 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 it's no surprise that some investors are more inclined to invest in profitable businesses. Like a firecracker arcing through the night sky, C-MER Eye Care Holdings's EPS shot from HK$0.03 to HK$0.061, over the last year. You don't see 108% year-on-year growth like that, very often. The best case scenario? That the business has hit a true inflection point.
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. While C-MER Eye Care Holdings did well to grow revenue over the last year, EBIT margins were dampened at the same time. So if EBIT margins can stabilize, this top-line growth should pay off for shareholders.
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.
While profitability drives the upside, prudent investors always check the balance sheet, too.
Are C-MER Eye Care Holdings Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
First things first; I didn't see insiders sell C-MER Eye Care Holdings shares in the last year. Even better, though, is that the Independent Non-Executive Director, Chi Leong Chan, bought a whopping HK$2.5m worth of shares, paying about HK$5.09 per share, on average. To me that means at least one insider thinks that the company is doing well - and they are backing that view with cash.
It's me that C-MER Eye Care Holdings insiders are buying the stock, but that's not the only reason to think leader are fair to shareholders. I refer to the very reasonable level of CEO pay. I discovered that the median total compensation for the CEOs of companies like C-MER Eye Care Holdings with market caps between HK$3.1b and HK$13b is about HK$3.6m.
The CEO of C-MER Eye Care Holdings only received HK$1.2m in total compensation for the year ending December 2018. That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.
Is C-MER Eye Care Holdings Worth Keeping An Eye On?
C-MER Eye Care Holdings's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. Better yet, we can observe insider buying and the chief executive pay looks reasonable. The strong EPS growth suggests C-MER Eye Care Holdings may be at an inflection point. If so, then it the potential for further gains probably merit a spot on your watchlist. Another important measure of business quality not discussed here, is return on equity (ROE). Click on this link to see how C-MER Eye Care Holdings shapes up to industry peers, when it comes to ROE.
As a growth investor I do like to see insider buying. But C-MER Eye Care 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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