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Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any 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. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
In contrast to all that, many investors prefer to focus on companies like Sunlands Technology Group (NYSE:STG), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
Check out our latest analysis for Sunlands Technology Group
Sunlands Technology Group's Improving Profits
In the last three years Sunlands Technology Group's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. As a result, we'll zoom in on growth over the last year, instead. Sunlands Technology Group's EPS shot up from CN¥40.50 to CN¥50.93; a result that's bound to keep shareholders happy. That's a fantastic gain of 26%.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. We note that while EBIT margins have improved from 20% to 30%, the company has actually reported a fall in revenue by 4.4%. That's not a good look.
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
Sunlands Technology Group isn't a huge company, given its market capitalisation of US$105m. That makes it extra important to check on its balance sheet strength.
Are Sunlands Technology Group Insiders Aligned With All Shareholders?
Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price. So those who are interested in Sunlands Technology Group will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. In fact, they own 52% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. With that sort of holding, insiders have about CN¥55m riding on the stock, at current prices. That's nothing to sneeze at!