Is Now The Time To Put J. Front Retailing (TSE:3086) On Your Watchlist?

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like J. Front Retailing (TSE:3086). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide J. Front Retailing with the means to add long-term value to shareholders.

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J. Front Retailing's Improving Profits

Over the last three years, J. Front Retailing 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. J. Front Retailing's EPS skyrocketed from JP¥114 to JP¥164, in just one year; a result that's bound to bring a smile to shareholders. That's a impressive gain of 44%.

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. J. Front Retailing shareholders can take confidence from the fact that EBIT margins are up from 11% to 13%, and revenue is growing. Ticking those two boxes is a good sign of growth, in our book.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

Check out our latest analysis for J. Front Retailing

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

Are J. Front Retailing Insiders Aligned With All Shareholders?

Prior to investment, it's always a good idea to check that the management team is paid reasonably. Pay levels around or below the median, can be a sign that shareholder interests are well considered. The median total compensation for CEOs of companies similar in size to J. Front Retailing, with market caps between JP¥286b and JP¥916b, is around JP¥145m.

The CEO of J. Front Retailing only received JP¥43m in total compensation for the year ending February 2024. First impressions seem to indicate a compensation policy that is favourable to shareholders. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of good governance, more generally.

Is J. Front Retailing Worth Keeping An Eye On?

If you believe that share price follows earnings per share you should definitely be delving further into J. Front Retailing's strong EPS growth. Strong EPS growth is a great look for the company and reasonable CEO compensation sweetens the deal for investors ass it alludes to management being conscious of frivolous spending. So this stock is well worth an addition to your watchlist as it has the potential to provide great value to shareholders. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for J. Front Retailing (1 is potentially serious) you should be aware of.

Although J. Front Retailing 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.