With EPS Growth And More, Kotobuki Spirits (TSE:2222) Makes An Interesting Case

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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 Kotobuki Spirits (TSE:2222). 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.

View our latest analysis for Kotobuki Spirits

Kotobuki Spirits' Improving Profits

Kotobuki Spirits 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. Thus, it makes sense to focus on more recent growth rates, instead. Kotobuki Spirits' EPS skyrocketed from JP¥53.01 to JP¥70.85, in just one year; a result that's bound to bring a smile to shareholders. That's a impressive gain of 34%.

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. The good news is that Kotobuki Spirits is growing revenues, and EBIT margins improved by 2.8 percentage points to 25%, over the last year. That's great to see, on both counts.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Kotobuki Spirits.

Are Kotobuki Spirits Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. Kotobuki Spirits followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. Notably, they have an enviable stake in the company, worth JP¥19b. This suggests that leadership will be very mindful of shareholders' interests when making decisions!

Should You Add Kotobuki Spirits To Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Kotobuki Spirits' strong EPS growth. With EPS growth rates like that, it's hardly surprising to see company higher-ups place confidence in the company through continuing to hold a significant investment. 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. Now, you could try to make up your mind on Kotobuki Spirits by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.

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.