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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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Fountain Set (Holdings) (HKG:420). 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 Fountain Set (Holdings)
How Quickly Is Fountain Set (Holdings) Increasing Earnings Per Share?
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. Fountain Set (Holdings) managed to grow EPS by 8.3% per year, over three years. That's a pretty good rate, if the company can sustain it.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. While Fountain Set (Holdings) may have maintained EBIT margins over the last year, revenue has fallen. And that does make me a little more cautious of the stock.
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.
Since Fountain Set (Holdings) is no giant, with a market capitalization of HK$1.5b, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Fountain Set (Holdings) Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
One shining light for Fountain Set (Holdings) is the serious outlay one insider has made to buy shares, in the last year. Specifically, the Founder & Honorary Chairman, Chung Ha, accumulated HK$8.6m worth of shares around HK$1.10. Big insider buys like that are almost as rare as an ocean free of single use plastic waste.
Along with the insider buying, another encouraging sign for Fountain Set (Holdings) is that insiders, as a group, have a considerable shareholding. Indeed, they hold HK$280m worth of its stock. That's a lot of money, and no small incentive to work hard. Those holdings account for over 19% of the company; visible skin in the game.