With EPS Growth And More, Asahi Songwon Colors (NSE:ASAHISONG) Is Interesting

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. 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.

In contrast to all that, I prefer to spend time on companies like Asahi Songwon Colors (NSE:ASAHISONG), which has not only revenues, but also profits. Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. 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.

See our latest analysis for Asahi Songwon Colors

Asahi Songwon Colors's Improving Profits

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 no surprise that some investors are more inclined to invest in profitable businesses. Like a falcon taking flight, Asahi Songwon Colors's EPS soared from ₹17.06 to ₹25.97, over the last year. That's a impressive gain of 52%.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Unfortunately, Asahi Songwon Colors's revenue dropped 5.6% last year, but the silver lining is that EBIT margins improved from 9.2% to 15%. That's not ideal.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

Asahi Songwon Colors isn't a huge company, given its market capitalization of ₹4.3b. That makes it extra important to check on its balance sheet strength.

Are Asahi Songwon Colors Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

We haven't seen any insiders selling Asahi Songwon Colors shares, in the last year. With that in mind, it's heartening that Arjun Jaykrishna, the Executive Director of the company, paid ₹1.5m for shares at around ₹151 each.

On top of the insider buying, we can also see that Asahi Songwon Colors insiders own a large chunk of the company. Indeed, with a collective holding of 70%, company insiders are in control and have plenty of capital behind the venture. This makes me think they will be incentivised to plan for the long term - something I like to see. With that sort of holding, insiders have about ₹3.0b riding on the stock, at current prices. That's nothing to sneeze at!

Does Asahi Songwon Colors Deserve A Spot On Your Watchlist?

For growth investors like me, Asahi Songwon Colors's raw rate of earnings growth is a beacon in the night. Better still, insiders own a large chunk of the company and one has even been buying more shares. So it's fair to say I think this stock may well deserve a spot on your watchlist. Still, you should learn about the 3 warning signs we've spotted with Asahi Songwon Colors .

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Asahi Songwon Colors, you'll probably love this free list of growing companies that insiders are buying.

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

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