Should You Be Adding MIT Holdings (TSE:4016) To Your Watchlist Today?

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. 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.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like MIT Holdings (TSE:4016). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide MIT Holdings with the means to add long-term value to shareholders.

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MIT Holdings' Improving Profits

Over the last three years, MIT Holdings 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. Impressively, MIT Holdings' EPS catapulted from JP¥23.74 to JP¥62.42, over the last year. Year on year growth of 163% is certainly a sight to behold.

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 MIT Holdings shareholders is that EBIT margins have grown from 1.8% to 3.8% in the last 12 months and revenues are on an upwards trend as well. That's great to see, on both counts.

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

View our latest analysis for MIT Holdings

Since MIT Holdings is no giant, with a market capitalisation of JP¥1.4b, you should definitely check its cash and debt before getting too excited about its prospects.

Are MIT Holdings 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 as you can imagine, the fact that MIT Holdings insiders own a significant number of shares certainly is appealing. Actually, with 48% of the company to their names, insiders are profoundly invested in the business. Shareholders and speculators should be reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. Of course, MIT Holdings is a very small company, with a market cap of only JP¥1.4b. So despite a large proportional holding, insiders only have JP¥675m worth of stock. This isn't an overly large holding but it should still keep the insiders motivated to deliver the best outcomes for shareholders.

Is MIT Holdings Worth Keeping An Eye On?

MIT Holdings' earnings per share have been soaring, with growth rates sky high. That sort of growth is nothing short of eye-catching, and the large investment held by insiders should certainly brighten the view of the company. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. So based on this quick analysis, we do think it's worth considering MIT Holdings for a spot on your watchlist. What about risks? Every company has them, and we've spotted 1 warning sign for MIT Holdings you should know about.

Although MIT Holdings 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.