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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Perfect Shape Medical (HKG:1830). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
See our latest analysis for Perfect Shape Medical
How Fast Is Perfect Shape Medical Growing Its Earnings Per Share?
Over the last three years, Perfect Shape Medical 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. As a result, I'll zoom in on growth over the last year, instead. Like a falcon taking flight, Perfect Shape Medical's EPS soared from HK$0.25 to HK$0.36, over the last year. That's a commendable gain of 45%.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Perfect Shape Medical shareholders can take confidence from the fact that EBIT margins are up from 31% to 39%, and revenue is growing. That's great to see, on both counts.
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Perfect Shape Medical's balance sheet strength, before getting too excited.
Are Perfect Shape Medical 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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
One shining light for Perfect Shape Medical is the serious outlay one insider has made to buy shares, in the last year. In one fell swoop, Founder Kong Au-Yeung, spent HK$11m, at a price of HK$3.35 per share. It doesn't get much better than that, in terms of large investments from insiders.
And the insider buying isn't the only sign of alignment between shareholders and the board, since Perfect Shape Medical insiders own more than a third of the company. In fact, they own 70% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes me think they will be incentivised to plan for the long term - something I like to see. At the current share price, that insider holding is worth a whopping HK$2.4b. Now that's what I call some serious skin in the game!
Does Perfect Shape Medical Deserve A Spot On Your Watchlist?
For growth investors like me, Perfect Shape Medical's raw rate of earnings growth is a beacon in the night. Better still, insiders own a large chunk of the company and one has even been buying more shares. So I do think this is one stock worth watching. Now, you could try to make up your mind on Perfect Shape Medical by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
The good news is that Perfect Shape Medical is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
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