Should You Be Adding CREAL (TSE:2998) To Your Watchlist Today?

Explore CREAL's Fair Values from the Community and select yours

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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. 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 CREAL (TSE:2998). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide CREAL with the means to add long-term value to shareholders.

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How Fast Is CREAL Growing Its Earnings Per Share?

Over the last three years, CREAL 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. So it would be better to isolate the growth rate over the last year for our analysis. In impressive fashion, CREAL's EPS grew from JP¥111 to JP¥224, over the previous 12 months. It's not often a company can achieve year-on-year growth of 101%. The best case scenario? That the business has hit a true inflection point.

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. While we note CREAL achieved similar EBIT margins to last year, revenue grew by a solid 99% to JP¥42b. 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.

Check out our latest analysis for CREAL

CREAL isn't a huge company, given its market capitalisation of JP¥33b. That makes it extra important to check on its balance sheet strength.

Are CREAL Insiders Aligned With All Shareholders?

Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price. So those who are interested in CREAL will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. Owning 45% of the company, insiders have plenty riding on the performance of the the share price. This should be a welcoming sign for investors because it suggests that the people making the decisions are also impacted by their choices. In terms of absolute value, insiders have JP¥15b invested in the business, at the current share price. That should be more than enough to keep them focussed on creating shareholder value!

Should You Add CREAL To Your Watchlist?

CREAL's earnings per share growth have been climbing higher at an appreciable rate. That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. So based on this quick analysis, we do think it's worth considering CREAL for a spot on your watchlist. You still need to take note of risks, for example - CREAL has 1 warning sign we think you should be aware of.

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.