Is Now The Time To Put Hakuten (TSE:2173) On Your Watchlist?

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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Hakuten (TSE:2173). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Hakuten with the means to add long-term value to shareholders.

See our latest analysis for Hakuten

How Fast Is Hakuten Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Hakuten's shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 45%. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.

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. EBIT margins for Hakuten remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 25% to JP¥17b. That's a real positive.

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.

Since Hakuten is no giant, with a market capitalisation of JP¥9.3b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Hakuten Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So those who are interested in Hakuten will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. Actually, with 46% of the company to their names, insiders are profoundly invested in the business. Shareholders and speculators should be reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. With that sort of holding, insiders have about JP¥4.3b riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!

Should You Add Hakuten To Your Watchlist?

Hakuten's earnings per share growth have been climbing higher at an appreciable rate. That sort of growth is nothing short of eye-catching, and the large investment held by insiders should certainly brighten the view of the company. 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 Hakuten very closely. You should always think about risks though. Case in point, we've spotted 3 warning signs for Hakuten you should be aware of.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in JP with promising growth potential and insider confidence.

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.