Are China XLX Fertilizer (HKG:1866) earnings worth your attention?
Some have more money than sense, they say, so even companies with no revenue, no profit and a history of failures can easily find investors. But as Peter Lynch said in One Up on Wall Street“Long shots almost never pay off.”
In the era of blue-sky tech-stock investments, my choice may seem old-fashioned; I always prefer profitable companies like China XLX Fertilizer (HKG:1866). Although profit is not necessarily a social good, it is easy to admire a company that can produce it consistently. In comparison, loss-making companies act like a sponge for capital – but unlike such a sponge, they don’t always produce something when pressed.
Check out our latest review for China XLX Fertilizer
Earnings per share of China XLX Fertilizer increase.
If you think markets are even remotely efficient, you expect a company’s share price to follow its earnings per share (EPS) over the long term. Therefore, there are many investors who like to buy shares in companies that grow EPS. While a tree regularly reaches for the sky, the EPS of China XLX Fertilizer has increased by 22% every year, compounded, over three years. If the company can sustain this type of growth, we expect shareholders to come out on top.
A careful look at revenue growth and earnings before interest and tax (EBIT) margins can help inform a view on the sustainability of recent earnings growth. The good news is that China XLX Fertilizer is increasing revenue and EBIT margins have improved by 6.7 percentage points to 16% compared to last year. It’s great to see, on both counts.
The chart below shows how the company’s top and bottom line has grown over time. Click on the table to see the exact numbers.
While profitability is driving the upside, cautious investors are also still checking the balance sheet.
Are China XLX Fertilizer insiders aligned with all shareholders?
I like that business leaders have some skin in the game, so to speak, because it increases the alignment of incentives between the people running the business and its true owners. It is therefore good to see that China XLX Fertilizer insiders have a large capital invested in the stock. Indeed, they have invested a mountain of sparkling wealth there, currently valued at 2.1 billion Canadian yen. Representing 21% of the business, this stake gives insiders plenty of leverage and plenty of reasons to drive shareholder value. Very encouraging.
It’s good to see that insiders are invested in the company, but are the compensation levels reasonable? A brief analysis of CEO compensation suggests they are. I found that the median total compensation for CEOs of companies like China XLX Fertilizer with market caps between 6.4 billion and 20 billion yen is around 3.3 million yen.
The CEO of China XLX Fertilizer received a total compensation of only CN¥761,000 during the year at . This seems to me to be a modest remuneration, and can suggest a certain respect for the interests of the shareholders. Although the level of CEO compensation is not a determining factor in my view of the company, modest compensation is positive, as it suggests that the board has the interests of shareholders in mind. It can also be a sign of a culture of integrity, broadly defined.
Is China XLX Fertilizer Worth Watching?
Since I think share price follows earnings per share, you can easily imagine how I feel about China XLX Fertilizer’s strong EPS growth. If you need more conviction beyond that EPS growth rate, don’t forget reasonable compensation and high insider participation. This may just be a quick overview, but the bottom line for me is that China XLX Fertilizer is worth watching. Remember that there may still be risks. For example, we have identified 3 warning signs for China XLX fertilizer of which you should be aware.
You can invest in the company of your choice. But if you’d rather focus on stocks that have been insider buying, here’s a list of companies that have been insider buying over the past three months.
Please note that insider trading discussed in this article refers to reportable trading in the relevant jurisdiction.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.