Here's Why I Think Changhae Ethanol (KOSDAQ:004650) Might Deserve Your Attention Today

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

In contrast to all that, I prefer to spend time on companies like Changhae Ethanol (KOSDAQ:004650), which has not only revenues, but also profits. Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

Check out our latest analysis for Changhae Ethanol

How Fast Is Changhae Ethanol Growing Its Earnings Per Share?

In the last three years Changhae Ethanol'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. Like a firecracker arcing through the night sky, Changhae Ethanol's EPS shot from ₩1,409 to ₩2,506, over the last year. You don't see 78% year-on-year growth like that, very often.

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. To cut to the chase Changhae Ethanol's EBIT margins dropped last year, and so did its revenue. That is, not a hint of euphemism here, suboptimal.

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.

Since Changhae Ethanol is no giant, with a market capitalization of ₩104b, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Changhae Ethanol 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. As a result, I'm encouraged by the fact that insiders own Changhae Ethanol shares worth a considerable sum. Indeed, they hold ₩32b worth of its stock. That's a lot of money, and no small incentive to work hard. Those holdings account for over 31% of the company; visible skin in the game.

Is Changhae Ethanol Worth Keeping An Eye On?

Changhae Ethanol's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. That sort of growth is nothing short of eye-catching, and the large investment held by insiders certainly brightens my view of the company. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So yes, on this short analysis I do think it's worth considering Changhae Ethanol for a spot on your watchlist. Don't forget that there may still be risks. For instance, we've identified 4 warning signs for Changhae Ethanol (1 is concerning) you should be aware of.

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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