Here’s Why We Think SYoung Group (SZSE:300740) Might Deserve Your Attention Today

2 months ago
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It’s common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, ‘Long shots almost never pay off.’ A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

So if this idea of high risk and high reward doesn’t suit, you might be more interested in profitable, growing companies, like SYoung Group (SZSE:300740). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide SYoung Group with the means to add long-term value to shareholders.

See our latest analysis for SYoung Group

The market is a voting machine in the short term, but a weighing machine in the long term, so you’d expect share price to follow earnings per share (EPS) outcomes eventually. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Impressively, SYoung Group has grown EPS by 17% per year, compound, in the last three years. As a general rule, we’d say that if a company can keep up that sort of growth, shareholders will be beaming.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it’s a great way for a company to maintain a competitive advantage in the market. SYoung Group’s EBIT margins have actually improved by 5.8 percentage points in the last year, to reach 9.1%, but, on the flip side, revenue was down 5.2%. That’s not a good look.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don’t exist, you can check our visualization of consensus analyst forecasts for SYoung Group’s future EPS 100% free.

Are SYoung Group Insiders Aligned With All Shareholders?

It’s pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. SYoung Group followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. Indeed, they have a considerable amount of wealth invested in it, currently valued at CN¥814m. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company’s future.

It’s good to see that insiders are invested in the company, but are remuneration levels reasonable? Our quick analysis into CEO remuneration would seem to indicate they are. Our analysis has discovered that the median total compensation for the CEOs of companies like SYoung Group with market caps between CN¥2.9b and CN¥12b is about CN¥918k.

SYoung Group’s CEO only received compensation totalling CN¥269k in the year to December 2022. This could be considered a token amount, and indicates that the company does not need to use payment to motivate the CEO – that is often a good sign. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Does SYoung Group Deserve A Spot On Your Watchlist?

For growth investors, SYoung Group’s raw rate of earnings growth is a beacon in the night. If you need more convincing beyond that EPS growth rate, don’t forget about the reasonable remuneration and the high insider ownership. This may only be a fast rundown, but the key takeaway is that SYoung Group is worth keeping an eye on. 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 SYoung Group is trading on a high P/E or a low P/E, relative to its industry.

There’s always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of Chinese companies which have demonstrated growth backed by recent insider purchases.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.…Read more by Simply Wall St

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