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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like China Tianrui Group Cement (HKG:1252). 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. 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 China Tianrui Group Cement Growing Its Earnings Per Share?
Over the last three years, China Tianrui Group Cement has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. Thus, it makes sense to focus on more recent growth rates, instead. Like a wedge-tailed eagle on the wind, China Tianrui Group Cement's EPS soared from CN¥0.39 to CN¥0.53, in just one year. That's a commendable gain of 34%.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). The good news is that China Tianrui Group Cement is growing revenues, and EBIT margins improved by 5.3 percentage points to 25%, over the last year. Ticking those two boxes is a good sign of growth, in my book.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
While profitability drives the upside, prudent investors always check the balance sheet, too.
Are China Tianrui Group Cement Insiders Aligned With All Shareholders?
As a general rule, I think it worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. I discovered that the median total compensation for the CEOs of companies like China Tianrui Group Cement with market caps between CN¥14b and CN¥45b is about CN¥3.6m.
The China Tianrui Group Cement CEO received total compensation of only CN¥462k in the year to December 2018. You could consider this pay as somewhat symbolic, which suggests the CEO does not need a lot of compensation to stay motivated. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.
Does China Tianrui Group Cement Deserve A Spot On Your Watchlist?
For growth investors like me, China Tianrui Group Cement's raw rate of earnings growth is a beacon in the night. The fast growth bodes well while the very reasonable CEO pay assists builds some confidence in the board. So I'd argue this is the kind of stock worth watching, even if it isn't great value today. 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 China Tianrui Group Cement is trading on a high P/E or a low P/E, relative to its industry.
Although China Tianrui Group Cement certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
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