Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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 Consun Pharmaceutical Group (HKG:1681). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
How Fast Is Consun Pharmaceutical Group Growing?
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. Impressively, Consun Pharmaceutical Group has grown EPS by 27% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.
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. Consun Pharmaceutical Group shareholders can take confidence from the fact that EBIT margins are up from 33% to 35%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
Fortunately, we've got access to analyst forecasts of Consun Pharmaceutical Group's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Consun Pharmaceutical Group Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
First things first; I didn't see insiders sell Consun Pharmaceutical Group shares in the last year. But the really good news is that Vice Chairlady of the Board & CEO Qian Li spent CN¥5.1m buying stock stock, at an average price of around CN¥4.04. Big buys like that give me a sense of opportunity; actions speak louder than words.
On top of the insider buying, we can also see that Consun Pharmaceutical Group insiders own a large chunk of the company. Indeed, with a collective holding of 55%, 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. And their holding is extremely valuable at the current share price, totalling CN¥1.9b. That means they have plenty of their own capital riding on the performance of the business!
Should You Add Consun Pharmaceutical Group To Your Watchlist?
For growth investors like me, Consun Pharmaceutical Group's raw rate of earnings growth is a beacon in the night. 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. 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 Consun Pharmaceutical Group is trading on a high P/E or a low P/E, relative to its industry.
As a growth investor I do like to see insider buying. But Consun Pharmaceutical Group 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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