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Should You Be Adding e-LITECOM (KOSDAQ:041520) 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 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.
So if you're like me, you might be more interested in profitable, growing companies, like e-LITECOM (KOSDAQ:041520). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
Check out our latest analysis for e-LITECOM
How Fast Is e-LITECOM Growing?
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that e-LITECOM has managed to grow EPS by 25% per year over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.
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. Unfortunately, e-LITECOM's revenue dropped 39% last year, but the silver lining is that EBIT margins improved from 1.6% to 7.1%. That falls short of ideal.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
e-LITECOM isn't a huge company, given its market capitalization of ₩143b. That makes it extra important to check on its balance sheet strength.
Are e-LITECOM 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 we're pleased to report that e-LITECOM insiders own a meaningful share of the business. Actually, with 47% of the company to their names, insiders are profoundly invested in the business. I'm always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. With that sort of holding, insiders have about ₩67b riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!
Is e-LITECOM Worth Keeping An Eye On?
Given my belief that share price follows earnings per share you can easily imagine how I feel about e-LITECOM's strong EPS growth. I think that EPS growth is something to boast of, and it doesn't surprise me that insiders are holding on to a considerable chunk of shares. Fast growth and confident insiders should be enough to warrant further research. So the answer is that I do think this is a good stock to follow along with. You should always think about risks though. Case in point, we've spotted 3 warning signs for e-LITECOM you should be aware of, and 1 of them is potentially serious.
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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About KOSDAQ:A041520
ELCLtd
Engages in the manufacture, development, and sale of semiconductor components worldwide.
Flawless balance sheet second-rate dividend payer.