Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone 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.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Landsea Green Properties (HKG:106). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. 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 Quickly Is Landsea Green Properties Increasing Earnings Per Share?
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 makes EPS growth an attractive quality for any company. It certainly is nice to see that Landsea Green Properties has managed to grow EPS by 28% per year over 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. While Landsea Green Properties 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.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
While profitability drives the upside, prudent investors always check the balance sheet, too.
Are Landsea Green Properties Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. 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.
One shining light for Landsea Green Properties is the serious outlay one insider has made to buy shares, in the last year. In one fell swoop, Chairman & CEO Ming Tian , spent HK$1.7m, at a price of HK$1.03 per share. It doesn't get much better than that, in terms of large investments from insiders.
On top of the insider buying, it's good to see that Landsea Green Properties insiders have a valuable investment in the business. With a whopping CN¥588m worth of shares as a group, insiders have plenty riding on the company's success. That holding amounts to 15% of the stock on issue, thus making insiders influential, and aligned, owners of the business.
Should You Add Landsea Green Properties To Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Landsea Green Properties's strong EPS growth. 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, profit growth is one thing but it's even better if Landsea Green Properties is receiving high returns on equity, since that should imply it can keep growing without much need for capital. Click on this link to see how it is faring against the average in its industry.
The good news is that Landsea Green Properties is not the only growth stock with insider buying. Here's a list of them... 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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