Should You Be Adding Terasaki ElectricLtd (TYO:6637) To Your Watchlist Today?

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. 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 Terasaki ElectricLtd (TYO:6637). 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. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

Check out our latest analysis for Terasaki ElectricLtd

How Fast Is Terasaki ElectricLtd Growing Its Earnings Per Share?

Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So EPS growth can certainly encourage an investor to take note of a stock. Like a firecracker arcing through the night sky, Terasaki ElectricLtd's EPS shot from JP¥84.97 to JP¥166, over the last year. You don't see 95% year-on-year growth like that, very often.

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. Terasaki ElectricLtd reported flat revenue and EBIT margins over the last year. That's not a major concern but nor does it point to the long term growth we like to see.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

Terasaki ElectricLtd isn't a huge company, given its market capitalization of JP¥14b. That makes it extra important to check on its balance sheet strength.

Are Terasaki ElectricLtd Insiders Aligned With All Shareholders?

It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. So it is good to see that Terasaki ElectricLtd insiders have a significant amount of capital invested in the stock. Indeed, they hold JP¥2.9b worth of its stock. That's a lot of money, and no small incentive to work hard. That amounts to 20% of the company, demonstrating a degree of high-level alignment with shareholders.

Is Terasaki ElectricLtd Worth Keeping An Eye On?

Terasaki ElectricLtd's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. That sort of growth is nothing short of eye-catching, and the large investment held by insiders certainly brightens my view of the company. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So to my mind Terasaki ElectricLtd is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. Before you take the next step you should know about the 1 warning sign for Terasaki ElectricLtd that we have uncovered.

Although Terasaki ElectricLtd 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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