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Is Now The Time To Put Dongwu Cement International (HKG:695) On Your Watchlist?

Simply Wall St

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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. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Dongwu Cement International (HKG:695). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. 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.

Check out our latest analysis for Dongwu Cement International

Dongwu Cement International's Improving Profits

In a capitalist society capital chases profits, and that means share prices tend rise with earnings per share (EPS). So like a ray of sunshine through a gap in the clouds, improving EPS is considered a good sign. You can imagine, then, that it almost knocked my socks off when I realized that Dongwu Cement International grew its EPS from CN¥0.047 to CN¥0.16, in one short year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement.

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. The good news is that Dongwu Cement International is growing revenues, and EBIT margins improved by 17.4 percentage points to 27%, over the last year. That's great to see, on both counts.

In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.

SEHK:695 Income Statement, July 2nd 2019

Since Dongwu Cement International is no giant, with a market capitalization of CN¥756m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Dongwu Cement International Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The first bit of good news is that no Dongwu Cement International insiders reported share sales in the last twelve months. Even better, though, is that the Executive Director, Chao Ling, bought a whopping CN¥5.7m worth of shares, paying about CN¥1.62 per share, on average. 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 Dongwu Cement International insiders own a large chunk of the company. Indeed, with a collective holding of 69%, company insiders are in control and have plenty of capital behind the venture. This makes me think they will be incentivised to plan for the long term - something I like to see. In terms of absolute value, insiders have CN¥519m invested in the business, using the current share price. That should be more than enough to keep them focussed on creating shareholder value!

Is Dongwu Cement International Worth Keeping An Eye On?

Dongwu Cement International's earnings per share growth has been so hot recently that thinking about it is making me blush. If you're like me, you'll find it hard to ignore that sort of explosive EPS growth. And indeed, it could be a sign that the business is at an inflection point. For me, this situation certainly piques my interest. 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 Dongwu Cement International is trading on a high P/E or a low P/E, relative to its industry.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Dongwu Cement International, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.