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Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Zhonghua Gas Holdings (HKG:8246). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
See our latest analysis for Zhonghua Gas Holdings
How Fast Is Zhonghua Gas Holdings Growing?
As one of my mentors once told me, share price follows earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Who among us would not applaud Zhonghua Gas Holdings's stratospheric annual EPS growth of 46%, compound, over the last three years? While that sort of growth rate isn't sustainable for long, it certainly catches my attention; like a glint in the eye of my lover.
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. The good news is that Zhonghua Gas Holdings is growing revenues, and EBIT margins improved by 6.6 percentage points to 33%, over the last year. That's great to see, on both counts.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
Since Zhonghua Gas Holdings is no giant, with a market capitalization of CN¥1.1b, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Zhonghua Gas Holdings Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Zhonghua Gas Holdings top brass are certainly in sync, not having sold any shares, over the last year. But my excitement comes from the CN¥1.2m that Executive Chairman Yishi Hu spent buying shares (at an average price of about CN¥0.39).