Here's Why A.D.Works GroupLtd (TSE:2982) Has Caught The Eye Of Investors

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. 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 A.D.Works GroupLtd (TSE:2982). 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.

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A.D.Works GroupLtd's Improving Profits

A.D.Works GroupLtd 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. As a result, we'll zoom in on growth over the last year, instead. To the delight of shareholders, A.D.Works GroupLtd's EPS soared from JP¥30.68 to JP¥47.43, over the last year. That's a fantastic gain of 55%.

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. A.D.Works GroupLtd maintained stable EBIT margins over the last year, all while growing revenue 44% to JP¥62b. That's progress.

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

See our latest analysis for A.D.Works GroupLtd

Since A.D.Works GroupLtd is no giant, with a market capitalisation of JP¥24b, you should definitely check its cash and debt before getting too excited about its prospects.

Are A.D.Works GroupLtd 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. A.D.Works GroupLtd followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. To be specific, they have JP¥4.1b worth of shares. This considerable investment should help drive long-term value in the business. Those holdings account for over 17% of the company; visible skin in the game.

Does A.D.Works GroupLtd Deserve A Spot On Your Watchlist?

For growth investors, A.D.Works GroupLtd's raw rate of earnings growth is a beacon in the night. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in A.D.Works GroupLtd's continuing strength. 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. It's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with A.D.Works GroupLtd (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

Although A.D.Works GroupLtd 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.