We Ran A Stock Scan For Earnings Growth And Semba (TSE:6540) Passed With Ease

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 currently lacks a track record of revenue and profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

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 Semba (TSE:6540). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

How Fast Is Semba Growing Its Earnings Per Share?

Semba has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. So it would be better to isolate the growth rate over the last year for our analysis. Semba's EPS shot up from JP¥99.88 to JP¥142; a result that's bound to keep shareholders happy. That's a impressive gain of 42%.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. EBIT margins for Semba remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 16% to JP¥29b. That's progress.

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.

Check out our latest analysis for Semba

Since Semba is no giant, with a market capitalisation of JP¥13b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Semba Insiders Aligned With All Shareholders?

It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. Shareholders will be pleased by the fact that insiders own Semba shares worth a considerable sum. Indeed, they hold JP¥2.4b worth of its stock. This considerable investment should help drive long-term value in the business. As a percentage, this totals to 18% of the shares on issue for the business, an appreciable amount considering the market cap.

Should You Add Semba To Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Semba's strong EPS growth. This EPS growth rate is something the company should be proud of, and so it's no surprise that insiders are holding on to a considerable chunk of shares. The growth and insider confidence is looked upon well and so it's worthwhile to investigate further with a view to discern the stock's true value. You should always think about risks though. Case in point, we've spotted 2 warning signs for Semba you should be aware of.

Although Semba certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of Japanese companies that not only boast of strong growth but have strong insider backing.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.