Here's Why We Think Komehyo HoldingsLtd (TSE:2780) Is Well Worth Watching

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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like Komehyo HoldingsLtd (TSE:2780), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

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Komehyo HoldingsLtd's Earnings Per Share Are Growing

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. That means EPS growth is considered a real positive by most successful long-term investors. Recognition must be given to the that Komehyo HoldingsLtd has grown EPS by 44% per year, over the last three years. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors.

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. EBIT margins for Komehyo HoldingsLtd remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 37% to JP¥147b. That's encouraging news for the company!

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.

See our latest analysis for Komehyo HoldingsLtd

Since Komehyo HoldingsLtd is no giant, with a market capitalisation of JP¥27b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Komehyo HoldingsLtd 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. Komehyo HoldingsLtd followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. With a whopping JP¥9.4b worth of shares as a group, insiders have plenty riding on the company's success. At 35% of the company, the co-investment by insiders fosters confidence that management will make long-term focussed decisions.

Should You Add Komehyo HoldingsLtd To Your Watchlist?

Komehyo HoldingsLtd's earnings have taken off in quite an impressive fashion. This level of EPS growth does wonders for attracting investment, and the large insider investment in the company is just the cherry on top. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So at the surface level, Komehyo HoldingsLtd is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. Even so, be aware that Komehyo HoldingsLtd is showing 3 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

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.