Should you add BYD (HKG: 1211) to your watchlist today?
Like a puppy chasing its tail, some new investors are often looking for “the next big thing,” even if that means buying “history stocks” with no income, let alone profit. But as Peter Lynch put it in One Up on Wall Street, ‘Long shots hardly ever pay off.’
Contrary to all of this, I prefer to spend time on companies like BYD (HKG: 1211), which not only has income, but also profits. While profit isn’t necessarily social good, it’s easy to admire a business that can consistently produce it. While a well-funded business can suffer losses for years, unless its owners have an endless appetite to subsidize the customer, it will eventually have to generate a profit, or else take its last breath.
See our latest analysis for BYD
How fast is BYD increasing its earnings per share?
As one of my mentors once told me, the stock price tracks earnings per share (EPS). This makes the growth of BPA an attractive quality for any business. BYD has managed to increase its EPS by 14% per year, over three years. This growth rate is good enough, assuming the business can sustain it.
I like to look at earnings before interest and tax margins (EBIT), as well as revenue growth, to get another idea of how well the business is growing. I note that BYD’s income operations was lower than its turnover for the last twelve months, which could skew my analysis of its margins. BYD has maintained stable EBIT margins over the past year, while increasing revenue by 52% to CN ¥ 178b. It is progress.
The graph below shows how the company’s bottom line has progressed over time. Click on the graph to see the exact numbers.
Fortunately, we have access to the forecasts from BYD analysts. to come up profits. You can make your own predictions without looking, or you can take a look at what the pros are predicting.
Are BYD Insiders Aligned with All Shareholders?
We wouldn’t expect to see insiders owning a significant percentage of a HK $ 923 billion company like BYD. But we are reassured by the fact that they are investors in the company. Indeed, they have invested a sparkling mountain of wealth, currently valued at CN ¥ 280b. With 30% of the activity, this participation gives insiders a lot of influence and many reasons to generate value for the shareholders. It may be my imagination, but I feel the glimmer of an opportunity.
It’s good to see insiders invested in the company, but are the pay levels reasonable? Well, based on CEO pay, I would say they are indeed. For companies with a market capitalization over CNN 52 billion, like BYD, the median CEO salary is around CNN 6.5 million.
The CEO of BYD received 5.3 million yen in compensation for the fiscal year ended. Sounds reasonable enough, especially considering it is below the median for companies of similar size. Although the level of CEO compensation is not a big factor in my view of the company, modest compensation is positive because it suggests that the board has the interests of shareholders in mind. It can also be a sign of a culture of integrity, in the broad sense.
Does BYD deserve a spot on your watchlist?
An important encouraging feature of BYD is that it increases profits. The fact that EPS is growing is a real plus for BYD, but the beautiful picture is better than that. With both modest CEO pay and considerable insider ownership, I would say this one is at least worthy of the watchlist. Still, you should educate yourself on 4 warning signs we spotted with BYD.
While BYD certainly looks good to me, I’d more like insiders to buy stocks. If you also like to see insiders buy, then this free list of growing companies that insiders are buying, might be exactly what you are looking for.
Please note that the insider dealing discussed in this article refers to reportable trades 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 using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St does not have any position in the mentioned stocks.
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