With EPS Growth And More, FFRI Security (TSE:3692) Makes An Interesting Case

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

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 FFRI Security (TSE:3692). 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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FFRI Security's Improving Profits

FFRI Security 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. Thus, it makes sense to focus on more recent growth rates, instead. FFRI Security's EPS skyrocketed from JP¥54.62 to JP¥86.86, in just one year; a result that's bound to bring a smile to shareholders. That's a fantastic gain of 59%.

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. The music to the ears of FFRI Security shareholders is that EBIT margins have grown from 20% to 27% in the last 12 months and revenues are on an upwards trend as well. Both of which are great metrics to check off for potential growth.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

View our latest analysis for FFRI Security

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check FFRI Security's balance sheet strength, before getting too excited.

Are FFRI Security 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 FFRI Security will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. Actually, with 46% of the company to their names, insiders are profoundly invested in the business. This should be a welcoming sign for investors because it suggests that the people making the decisions are also impacted by their choices. With that sort of holding, insiders have about JP¥24b riding on the stock, at current prices. That's nothing to sneeze at!

Is FFRI Security Worth Keeping An Eye On?

If you believe that share price follows earnings per share you should definitely be delving further into FFRI Security's strong EPS growth. With EPS growth rates like that, it's hardly surprising to see company higher-ups place confidence in the company through continuing to hold a significant investment. 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. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for FFRI Security that 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.