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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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Huayu Expressway Group (HKG:1823). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
View our latest analysis for Huayu Expressway Group
Huayu Expressway Group's Improving Profits
Over the last three years, Huayu Expressway Group 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 firecracker arcing through the night sky, Huayu Expressway Group's EPS shot from HK$0.077 to HK$0.20, over the last year. You don't see 156% year-on-year growth like that, very often. The best case scenario? That the business has hit a true inflection point.
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. While Huayu Expressway Group did well to grow revenue over the last year, EBIT margins were dampened at the same time. So it seems the future my hold further growth, especially if EBIT margins can stabilize.
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.
Since Huayu Expressway Group is no giant, with a market capitalization of HK$425m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Huayu Expressway Group Insiders Aligned With All Shareholders?
Personally, I like to see high insider ownership of a company, since it suggests that it will be managed in the interests of shareholders. So we're pleased to report that Huayu Expressway Group insiders own a meaningful share of the business. In fact, they own 73% 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. In terms of absolute value, insiders have HK$309m invested in the business, using the current share price. That's nothing to sneeze at!