Should You Be Adding SaftecLtd (TYO:7464) To Your Watchlist Today?

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in SaftecLtd (TYO:7464). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for SaftecLtd

How Fast Is SaftecLtd Growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That makes EPS growth an attractive quality for any company. As a tree reaches steadily for the sky, SaftecLtd's EPS has grown 27% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

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 seems SaftecLtd is pretty stable, since revenue and EBIT margins are pretty flat year on year. That's not bad, but it doesn't point to ongoing future growth, either.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

SaftecLtd isn't a huge company, given its market capitalization of JP¥4.5b. That makes it extra important to check on its balance sheet strength.

Are SaftecLtd Insiders Aligned With All Shareholders?

It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. As a result, I'm encouraged by the fact that insiders own SaftecLtd shares worth a considerable sum. To be specific, they have JP¥1.4b worth of shares. That's a lot of money, and no small incentive to work hard. Those holdings account for over 30% of the company; visible skin in the game.

Does SaftecLtd Deserve A Spot On Your Watchlist?

You can't deny that SaftecLtd has grown its earnings per share at a very impressive rate. That's attractive. Further, the high level of insider ownership impresses me, and suggests that I'm not the only one who appreciates the EPS growth. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. You still need to take note of risks, for example - SaftecLtd has 2 warning signs we think you should be aware of.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

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. 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.
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