Here's Why I Think Cape Industries (KOSDAQ:064820) Is An Interesting Stock

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Cape Industries (KOSDAQ:064820). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

View our latest analysis for Cape Industries

How Fast Is Cape Industries Growing Its Earnings Per Share?

In the last three years Cape Industries's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. As a result, I'll zoom in on growth over the last year, instead. It's good to see that Cape Industries's EPS have grown from ₩259 to ₩316 over twelve months. That's a 22% gain; respectable growth in the broader scheme of things.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. I note that Cape Industries's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Cape Industries maintained stable EBIT margins over the last year, all while growing revenue 19% to ₩420b. That's progress.

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.

Since Cape Industries is no giant, with a market capitalization of ₩159b, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Cape Industries Insiders Aligned With All Shareholders?

I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Cape Industries insiders have a significant amount of capital invested in the stock. Indeed, they hold ₩24b worth of its stock. That's a lot of money, and no small incentive to work hard. That amounts to 15% of the company, demonstrating a degree of high-level alignment with shareholders.

Should You Add Cape Industries To Your Watchlist?

As I already mentioned, Cape Industries is a growing business, which is what I like to see. Just as polish makes silverware pop, the high level of insider ownership enhances my enthusiasm for this growth. The combination sparks joy for me, so I'd consider keeping the company on a watchlist. What about risks? Every company has them, and we've spotted 3 warning signs for Cape Industries (of which 2 can't be ignored!) you should know about.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

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. 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.
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