Is Now The Time To Put ToumeiLtd (TSE:4439) On Your Watchlist?

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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 ToumeiLtd (TSE:4439). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

See our latest analysis for ToumeiLtd

ToumeiLtd's Improving Profits

In the last three years ToumeiLtd's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. Thus, it makes sense to focus on more recent growth rates, instead. Outstandingly, ToumeiLtd's EPS shot from JP¥74.18 to JP¥125, over the last year. Year on year growth of 68% is certainly a sight to behold.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. ToumeiLtd shareholders can take confidence from the fact that EBIT margins are up from 7.6% to 11%, and revenue is growing. That's great to see, on both counts.

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.

ToumeiLtd isn't a huge company, given its market capitalisation of JP¥35b. That makes it extra important to check on its balance sheet strength.

Are ToumeiLtd 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 ToumeiLtd will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. In fact, they own 58% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. With that sort of holding, insiders have about JP¥20b riding on the stock, at current prices. So there's plenty there to keep them focused!

Does ToumeiLtd Deserve A Spot On Your Watchlist?

ToumeiLtd's 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. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So at the surface level, ToumeiLtd is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. Still, you should learn about the 1 warning sign we've spotted with ToumeiLtd.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in JP with promising growth potential and insider confidence.

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.