Is Now The Time To Put infoNet (TSE:4444) 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. 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. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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 infoNet (TSE:4444). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide infoNet with the means to add long-term value to shareholders.

Check out our latest analysis for infoNet

How Fast Is infoNet Growing Its Earnings Per Share?

Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So EPS growth can certainly encourage an investor to take note of a stock. In impressive fashion, infoNet's EPS grew from JP¥31.27 to JP¥60.83, over the previous 12 months. It's not often a company can achieve year-on-year growth of 95%.

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. infoNet shareholders can take confidence from the fact that EBIT margins are up from 5.8% to 12%, and revenue is growing. 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. To see the actual numbers, click on the chart.

infoNet isn't a huge company, given its market capitalisation of JP¥2.6b. That makes it extra important to check on its balance sheet strength.

Are infoNet Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So as you can imagine, the fact that infoNet insiders own a significant number of shares certainly is appealing. In fact, they own 49% of the shares, making insiders a very influential shareholder group. Shareholders and speculators should be reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. Valued at only JP¥2.6b infoNet is really small for a listed company. So this large proportion of shares owned by insiders only amounts to JP¥1.2b. That might not be a huge sum but it should be enough to keep insiders motivated!

Is infoNet Worth Keeping An Eye On?

infoNet'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, infoNet is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. Even so, be aware that infoNet is showing 2 warning signs in our investment analysis , and 1 of those is a bit concerning...

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.