Should You Be Adding Chugai Pharmaceutical (TSE:4519) To Your Watchlist Today?

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.

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 Chugai Pharmaceutical (TSE:4519). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Chugai Pharmaceutical with the means to add long-term value to shareholders.

See our latest analysis for Chugai Pharmaceutical

How Quickly Is Chugai Pharmaceutical Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Over the last three years, Chugai Pharmaceutical has grown EPS by 15% per year. That growth rate is fairly good, assuming the company can keep it up.

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. Our analysis has highlighted that Chugai Pharmaceutical'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. Unfortunately, Chugai Pharmaceutical's revenue dropped 13% last year, but the silver lining is that EBIT margins improved from 37% to 45%. While not disastrous, these figures could be better.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Chugai Pharmaceutical's forecast profits?

Are Chugai Pharmaceutical Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a JP¥12t company like Chugai Pharmaceutical. But we are reassured by the fact they have invested in the company. As a matter of fact, their holding is valued at JP¥2.3b. This considerable investment should help drive long-term value in the business. Despite being just 0.02% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Does Chugai Pharmaceutical Deserve A Spot On Your Watchlist?

One positive for Chugai Pharmaceutical is that it is growing EPS. That's nice to see. If that's not enough on its own, there is also the rather notable levels of insider ownership. The combination definitely favoured by investors so consider keeping the company on a watchlist. If you think Chugai Pharmaceutical might suit your style as an investor, you could go straight to its annual report, or you could first check our discounted cash flow (DCF) valuation for the company.

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.