Should You Be Adding Sanyu ConstructionLtd (TYO:1841) To Your Watchlist Today?

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.'

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Sanyu ConstructionLtd (TYO:1841). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

Check out our latest analysis for Sanyu ConstructionLtd

How Fast Is Sanyu ConstructionLtd 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. Like a firecracker arcing through the night sky, Sanyu ConstructionLtd's EPS shot from JP¥54.19 to JP¥90.51, over the last year. You don't see 67% year-on-year growth like that, very often.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Not all of Sanyu ConstructionLtd'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. Unfortunately, Sanyu ConstructionLtd's revenue dropped 4.7% last year, but the silver lining is that EBIT margins improved from 2.0% to 4.5%. That falls short of ideal.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

Sanyu ConstructionLtd isn't a huge company, given its market capitalization of JP¥3.3b. That makes it extra important to check on its balance sheet strength.

Are Sanyu ConstructionLtd 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 Sanyu ConstructionLtd insiders own a significant number of shares certainly appeals to me. In fact, they own 39% of the shares, making insiders a very influential shareholder group. 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. Of course, Sanyu ConstructionLtd is a very small company, with a market cap of only JP¥3.3b. That means insiders only have JP¥1.3b worth of shares, despite the large proportional holding. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

Is Sanyu ConstructionLtd Worth Keeping An Eye On?

Sanyu ConstructionLtd's earnings per share have taken off like a rocket aimed right at the moon. That sort of growth is nothing short of eye-catching, and the large investment held by insiders certainly brightens my view of the company. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So yes, on this short analysis I do think it's worth considering Sanyu ConstructionLtd for a spot on your watchlist. We should say that we've discovered 3 warning signs for Sanyu ConstructionLtd (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

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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