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Should You Be Adding China Life Insurance (HKG-2628) To Your Watchlist Today?

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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. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

HKG:2628), which has not only revenues, but also profits. 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." data-reactid="28">In contrast to all that, I prefer to spend time on companies like China Life Insurance (HKG:2628), which has not only revenues, but also profits. 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.

Check out our latest analysis for China Life Insurance " data-reactid="29"> Check out our latest analysis for China Life Insurance

How Quickly Is China Life Insurance Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That means EPS growth is considered a real positive by most successful long-term investors. Who among us would not applaud China Life Insurance's stratospheric annual EPS growth of 52%, compound, over the last three years? While that sort of growth rate isn't sustainable for long, it certainly catches my attention; like a crow with a sparkly stone.

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. I note that China Life Insurance's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. While we note China Life Insurance's EBIT margins were flat over the last year, revenue grew by a solid 11% to CN¥718b. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

SEHK:2628 Income Statement, January 3rd 2020

take a peek at what the professionals are predicting." data-reactid="46">Fortunately, we've got access to analyst forecasts of China Life Insurance's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are China Life Insurance Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a HK$978b company like China Life Insurance. But we are reassured by the fact they have invested in the company. Indeed, they hold CN¥301m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 0.03% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Is China Life Insurance Worth Keeping An Eye On?

you could also consider how its price-to-earnings ratio compares to other companies in its industry." data-reactid="50">China Life Insurance'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. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So yes, on this short analysis I do think it's worth considering China Life Insurance for a spot on your watchlist. Now, you could try to make up your mind on China Life Insurance by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.

a free list of them here." data-reactid="55">Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

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

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading." data-reactid="57">If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.


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