Here’s why Huafa Property Services Group (HKG:982) has caught investors’ attention

Investors are often driven by the idea of ​​discovering “the next big thing,” even if that means buying “historic stocks” without any income, let alone profit. Sometimes these stories can cloud investors’ minds, leading them to invest with their emotions rather than based on the company’s sound fundamentals. Although a well-financed company may make losses for years, it will eventually need to generate profits or investors will leave and the company will wither.

Despite being in the age of open-air investing in tech stocks, many investors still adopt a more traditional strategy; buy shares in profitable companies like Huafa Real Estate Services Group (HKG: 982). Although profit is not the only metric to consider when investing, it is worth recognizing companies that can produce it consistently.

View our latest analysis for Huafa Property Services Group

Huafa Property Services group’s earnings per share are growing

The market is a voting machine in the short term, but a weighing machine in the long term, so we can expect the stock price to eventually follow earnings per share (EPS) results. It therefore makes sense for experienced investors to pay close attention to the company’s EPS when undertaking investment research. Admittedly, Huafa Property Services Group has grown its EPS by 40% per year over the past three years. Such rapid growth may be fleeting, but it should be more than enough to pique the interest of cautious stock pickers.

It’s often useful to look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another view of the quality of the company’s growth. Huafa Property Services Group shareholders can take comfort in the fact that EBIT margins have increased from 17% to 21% and revenue is growing. These are two excellent indicators for checking potential growth.

The chart below shows how the company’s financial and top-line results have changed over time. To see the actual numbers, click on the chart.

SEHK: 982 Earnings and revenue history as of May 28, 2024

While it’s always good to see earnings growth, you should never forget that a weak balance sheet could backfire. So check the strength of Huafa Property Services Group’s balance sheet, before getting too excited.

Are Huafa Property Services Group insiders aligned with all shareholders?

It’s nice to see business leaders putting their money on the line, so to speak, because it improves the alignment of incentives between the people running the business and its true owners. So it’s good to see that Huafa Property Services Group insiders have significant capital invested in the stock. In fact, their stake is valued at 130 million yen. This considerable investment is expected to help generate long-term value for the company. Even if their stake represents only 4.7%, the stakes remain considerable to encourage the company to maintain a strategy which will bring value to shareholders.

While it’s always good to see strong conviction in the company from insiders through massive investment, it’s also important for shareholders to question whether executive compensation policies are reasonable. Our quick analysis of CEO compensation seems to indicate that this is the case. The median total compensation for CEOs of companies similar in size to Huafa Property Services Group, with a market capitalization between ¥1.4 billion and ¥5.8 billion, is around ¥3.0 million.

The CEO of Huafa Property Services Group received only CN¥45,000 in total compensation for the year ending December 2023. This total may indicate that the CEO is sacrificing his take-home pay for performance-based benefits, ensuring that his motivations are synonymous with a solid business. results. CEO compensation isn’t the most important aspect to consider in a company, but when it’s reasonable, it gives a little more confidence that executives are looking out for shareholders’ interests. It can also be a sign of good governance, more generally.

Does Huafa Property Services Group deserve a spot on your watchlist?

Huafa Property Services Group’s earnings per share have soared, with extremely high growth rates. An added bonus for those who are interested is that management owns a large number of shares and the CEO compensation is quite reasonable, illustrating good cash flow management. The drastic profit growth indicates that the company is going from strength to strength. Hopefully this trend continues in the future. Big growth can make big winners, which is why the writing on the wall tells us that Huafa Property Services Group is worth a close look. Of course, just because Huafa Property Services Group is growing doesn’t mean it’s undervalued. If you’re wondering about valuation, check out this gauge of its price-to-earnings ratio, relative to its sector.

It is still possible to succeed by buying stocks that are not growing revenues and not have insiders buying shares. But for those who consider these parameters important, we encourage you to consult companies that TO DO have these characteristics. You can access a personalized list of Hong Kong companies that have demonstrated growth supported by significant insider holdings.

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

The assessment is complex, but we help to simplify it.

Find out if Huafa Property Services Group is potentially overvalued or undervalued by checking out our full analysis, which includes fair value estimates, risks and warnings, dividends, insider trading and financial health.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to constitute financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your objectives or your financial situation. Our goal is to provide you with targeted, long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.