Business Economics

I Ran A Stock Scan For Earnings Growth And Futu Holdings (NASDAQ:FUTU) Passed With Ease

It’s only natural that many investors, especially those who are new to the game, prefer to buy shares in ‘sexy’ stocks with a good story, even if those businesses lose money. But as Peter Lynch said in One Up On Wall Street, ‘Long shots almost never pay off.’

So if you’re like me, you might be more interested in profitable, growing companies, like Futu Holdings (NASDAQ:FUTU). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

Check out our latest analysis for Futu Holdings

How Fast Is Futu Holdings Growing Its Earnings Per Share?

Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So EPS growth can certainly encourage an investor to take note of a stock. You can imagine, then, that it almost knocked my socks off when I realized that Futu Holdings grew its EPS from HK$2.32 to HK$17.43, in one short year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

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. Not all of Futu Holdings’s revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I’ve used might not be the best representation of the underlying business. While we note Futu Holdings’s EBIT margins were flat over the last year, revenue grew by a solid 288% to HK$4.7b. That’s progress.

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.

NasdaqGM:FUTU Earnings and Revenue History June 29th 2021

While we live in the present moment at all times, there’s no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Futu Holdings?

Are Futu Holdings Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So as you can imagine, the fact that Futu Holdings insiders own a significant number of shares certainly appeals to me. Actually, with 36% of the company to their names, insiders are profoundly invested in the business. I’m always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. And their holding is extremely valuable at the current share price, totalling HK$9.3b. That means they have plenty of their own capital riding on the performance of the business!

Does Futu Holdings Deserve A Spot On Your Watchlist?

Futu Holdings’s earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So to my mind Futu Holdings is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. We don’t want to rain on the parade too much, but we did also find 3 warning signs for Futu Holdings that you need to be mindful of.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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