For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells investors a good story, even if it doesn’t have a sales and earnings record. But as Peter Lynch said in One Up on Wall Street“Long shots are almost never worth it.”
On the other hand, if you like companies that have income and even make profits, then this might interest you Sunny Optical Technology (group) (HKG: 2382). Even if stocks are fully valued today, most capitalists would recognize their gains as evidence of steady value creation. Loss-making companies always struggle against time to achieve financial sustainability, but time is often a friend of the profitable company, especially as it grows.
The earnings per share of Sunny Optical Technology (group) grows.
The market is a voting machine in the short term, but a scales in the long term, so the share price ultimately follows earnings per share (EPS). This makes EPS growth an attractive quality for every company. With a tree rising steadily into the sky, Sunny Optical Technology (Group )’s EPS has increased 19% every year for three years. If the company can sustain this type of growth, we expect shareholders to emerge as winners.
Careful consideration of sales growth and profit margins before interest and taxes (EBIT) can help assess the sustainability of recent profit growth. Sunny Optical Technology (Group) recorded unchanged sales and EBIT margins in the past year. That’s not bad, but neither does it indicate further future growth.
You can see the company’s sales and earnings growth trend in the graph below. For finer details click on the picture.
Although we live in the present moment at all times, I have no doubt that the future is more important than the past. So why not check it out this interactive graphic with future EPS estimates for Sunny Optical Technology (group)?
Are Sunny Optical Technology (Group) insiders geared towards all shareholders?
We wouldn’t expect Insiders to own a huge stake in a HK $ 250 billion company like Sunny Optical Technology (Group). But it comforts us that they are investors in the company. In fact, they have invested a glittering mountain of fortune which is currently valued at CN ¥ 8.5 billion. For me, this indicates that the management will take the interests of the shareholders very much into account in their decisions!
It means a lot to see insiders invest in the business, but I wonder if the compensation policy is shareholder friendly. Well, based on the CEO salary, I’d say they actually are. For companies with a market capitalization above CN ¥ 52b, such as Sunny Optical Technology (Group), the average CEO salaries are around CN ¥ 6.0 million.
Sunny Optical Technology (Group) offered its CEO total compensation of CN ¥ 4.0 million in the year to. This is below average for companies of similar size and seems pretty reasonable to me. CEO compensation is hardly the most important aspect of a company to consider, but when it’s reasonable it gives me a little more confidence that management is looking after the interests of shareholders. It can also be a general sign of good governance.
Is it worth keeping an eye on Sunny Optical Technology (group)?
Given my belief that the share price will follow earnings per share, you can easily imagine how I see the strong EPS growth of Sunny Optical Technology (Group). If you need more persuasion beyond the EPS growth rate, don’t forget the appropriate compensation and high insider rate. This may only be a brief overview, but for me it is important to keep an eye on Sunny Optical Technology (Group). However, you should always think about risks. Case in point, we discovered it 1 warning sign for Sunny Optical Technology (group) you should be aware.
Of course you can (sometimes) well buy stocks that are not increasing revenue and do not have insiders buying stocks. But as a growth investor, I always enjoy looking at companies that to do have these functions. You can access it a free list of them here.
Please note that the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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This article from Simply Wall St is of a general nature. It is not a recommendation to buy or sell stocks and does not take into account your goals or your financial situation. Our goal is to provide you with long-term, focused analysis based on fundamentals. Note that our analysis may not take into account the latest company announcements or quality material, which may be sensitive to the price. Simply Wall St has no position in the stocks mentioned.
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