Is Now The Time To Put KITAC (TSE:4707) On Your Watchlist?

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like KITAC (TSE:4707). 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 KITAC

How Fast Is KITAC 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. Outstandingly, KITAC's EPS shot from JP¥24.11 to JP¥41.25, over the last year. Year on year growth of 71% is certainly a sight to behold.

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. Our analysis has highlighted that KITAC's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. Despite the relatively flat revenue figures, shareholders will be pleased to see EBIT margins have grown from 5.1% to 7.7% in the last 12 months. That's something to smile about.

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

KITAC isn't a huge company, given its market capitalisation of JP¥2.9b. That makes it extra important to check on its balance sheet strength.

Are KITAC Insiders Aligned With All Shareholders?

Theory would suggest that it's an encouraging sign to see high insider ownership of a company, since it ties company performance directly to the financial success of its management. So those who are interested in KITAC will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. In fact, they own 35% of the shares, making insiders a very influential shareholder group. This should be a welcoming sign for investors because it suggests that the people making the decisions are also impacted by their choices. Valued at only JP¥2.9b KITAC is really small for a listed company. So this large proportion of shares owned by insiders only amounts to JP¥1.0b. That might not be a huge sum but it should be enough to keep insiders motivated!

Should You Add KITAC To Your Watchlist?

KITAC's 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. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. Based on the sum of its parts, we definitely think its worth watching KITAC very closely. We should say that we've discovered 3 warning signs for KITAC (1 is a bit concerning!) that you should be aware of before investing here.

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 tailored list of Japanese companies which have demonstrated growth backed by significant insider holdings.

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.