Should You Be Adding SeAH Steel (KRX:306200) To Your Watchlist Today?

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like SeAH Steel (KRX:306200). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

Check out our latest analysis for SeAH Steel

SeAH Steel's Improving Profits

Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So it's no surprise that some investors are more inclined to invest in profitable businesses. Like a wedge-tailed eagle on the wind, SeAH Steel's EPS soared from ₩7,200 to ₩9,805, in just one year. That's a commendable gain of 36%.

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. While SeAH Steel may have maintained EBIT margins over the last year, revenue has fallen. And that does make me a little more cautious of the stock.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

SeAH Steel isn't a huge company, given its market capitalization of ₩235b. That makes it extra important to check on its balance sheet strength.

Are SeAH Steel 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 SeAH Steel shares worth a considerable sum. Indeed, they hold ₩19b worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 8.1% of the company, demonstrating a degree of high-level alignment with shareholders.

Is SeAH Steel Worth Keeping An Eye On?

Given my belief that share price follows earnings per share you can easily imagine how I feel about SeAH Steel's strong EPS growth. Further, the high level of insider ownership impresses me, and suggests that I'm not the only one who appreciates the EPS growth. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. You should always think about risks though. Case in point, we've spotted 1 warning sign for SeAH Steel you should be aware of.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

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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