Is Now The Time To Put Aichi Steel (TSE:5482) On Your Watchlist?

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. 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.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Aichi Steel (TSE:5482). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Aichi Steel with the means to add long-term value to shareholders.

Our free stock report includes 2 warning signs investors should be aware of before investing in Aichi Steel. Read for free now.

How Fast Is Aichi Steel Growing Its Earnings Per Share?

Over the last three years, Aichi Steel has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. Thus, it makes sense to focus on more recent growth rates, instead. Aichi Steel's EPS has risen over the last 12 months, growing from JP¥334 to JP¥409. This amounts to a 23% gain; a figure that shareholders will be pleased to see.

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. It was a year of stability for Aichi Steel as both revenue and EBIT margins remained have been flat over the past year. While this doesn't ring alarm bells, it may not meet the expectations of growth-minded investors.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

Check out our latest analysis for Aichi Steel

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Aichi Steel Insiders Aligned With All Shareholders?

It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. So it is good to see that Aichi Steel insiders have a significant amount of capital invested in the stock. To be specific, they have JP¥4.9b worth of shares. This considerable investment should help drive long-term value in the business. While their ownership only accounts for 3.3%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.

Should You Add Aichi Steel To Your Watchlist?

One positive for Aichi Steel is that it is growing EPS. That's nice to see. For those who are looking for a little more than this, the high level of insider ownership enhances our enthusiasm for this growth. That combination is very appealing. So yes, we do think the stock is worth keeping an eye on. It is worth noting though that we have found 2 warning signs for Aichi Steel (1 is a bit unpleasant!) that you need to take into consideration.

Although Aichi Steel 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.

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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.