Here's Why We Think TopGum Industries (TLV:TPGM) Is Well Worth Watching

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

In contrast to all that, many investors prefer to focus on companies like TopGum Industries (TLV:TPGM), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

View our latest analysis for TopGum Industries

How Fast Is TopGum Industries 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 it's easy to see why many investors focus in on EPS growth. It is awe-striking that TopGum Industries' EPS went from ₪0.016 to ₪0.069 in just one year. Even though that growth rate may not be repeated, that looks like a breakout improvement. Could this be a sign that the business has reached an inflection point?

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. TopGum Industries shareholders can take confidence from the fact that EBIT margins are up from 3.7% to 9.9%, and revenue is growing. That's great to see, on both counts.

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.

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are TopGum Industries 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 TopGum Industries insiders own a significant number of shares certainly is appealing. To be exact, company insiders hold 52% of the company, so their decisions have a significant impact on their investments. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. With that sort of holding, insiders have about ₪636m riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!

Should You Add TopGum Industries To Your Watchlist?

TopGum Industries' earnings per share growth have been climbing higher at an appreciable rate. This level of EPS growth does wonders for attracting investment, and the large insider investment in the company is just the cherry on top. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. So based on this quick analysis, we do think it's worth considering TopGum Industries for a spot on your watchlist. Still, you should learn about the 1 warning sign we've spotted with TopGum Industries.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you 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.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.