Here's Why User Local (TSE:3984) Has Caught The Eye Of Investors

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. 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.

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 User Local (TSE:3984). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

Check out our latest analysis for User Local

User Local's Improving Profits

Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So it's no surprise that some investors are more inclined to invest in profitable businesses. User Local's EPS shot up from JP¥49.34 to JP¥67.94; a result that's bound to keep shareholders happy. That's a fantastic gain of 38%.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. The music to the ears of User Local shareholders is that EBIT margins have grown from 38% to 43% 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.

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.

Since User Local is no giant, with a market capitalisation of JP¥39b, you should definitely check its cash and debt before getting too excited about its prospects.

Are User Local Insiders Aligned With All Shareholders?

Theory would suggest that it's an encouraging sign to see high insider ownership of a company, since it ties company performance directly to the financial success of its management. So those who are interested in User Local will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. Owning 50% 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. With that sort of holding, insiders have about JP¥19b riding on the stock, at current prices. That's nothing to sneeze at!

Does User Local Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into User Local's strong EPS growth. This EPS growth rate is something the company should be proud of, and so it's no surprise that insiders are holding on to a considerable chunk of shares. Fast growth and confident insiders should be enough to warrant further research, so it would seem that it's a good stock to follow. It is worth noting though that we have found 1 warning sign for User Local that you need to take into consideration.

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 recent insider purchases.

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.