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.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Daiken (TYO:5900). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
View our latest analysis for Daiken
How Quickly Is Daiken Increasing Earnings Per Share?
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Daiken managed to grow EPS by 4.0% per year, over three years. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.
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. While Daiken may have maintained EBIT margins over the last year, revenue has fallen. And that does make me a little more cautious of the stock.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
Daiken isn't a huge company, given its market capitalization of JP¥4.5b. That makes it extra important to check on its balance sheet strength.
Are Daiken Insiders Aligned With All Shareholders?
I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Daiken insiders have a significant amount of capital invested in the stock. To be specific, they have JP¥1.6b worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 35% of the company; visible skin in the game.
Should You Add Daiken To Your Watchlist?
One positive for Daiken is that it is growing EPS. That's nice to see. If that's not enough on its own, there is also the rather notable levels of insider ownership. That combination appeals to me, for one. So yes, I do think the stock is worth keeping an eye on. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for Daiken (1 makes us a bit uncomfortable) you should be aware of.
Although Daiken certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.
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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About TSE:5900
DaikenLtd
Manufactures and supplies various metal products primarily in Japan.
Flawless balance sheet with questionable track record.
