Does DAIHAN Scientific (KOSDAQ:131220) Deserve A Spot On Your Watchlist?

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. 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 DAIHAN Scientific (KOSDAQ:131220). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. 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.

View our latest analysis for DAIHAN Scientific

DAIHAN Scientific's Earnings Per Share Are Growing.

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Impressively, DAIHAN Scientific has grown EPS by 17% per year, compound, in the last three years. So it's not surprising to see the company trades on a very high multiple of (past) earnings.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). While we note DAIHAN Scientific's EBIT margins were flat over the last year, revenue grew by a solid 11% to ₩62b. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

Since DAIHAN Scientific is no giant, with a market capitalization of ₩97b, so you should definitely check its cash and debt before getting too excited about its prospects.

Are DAIHAN Scientific 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 DAIHAN Scientific insiders have a significant amount of capital invested in the stock. To be specific, they have ₩28b worth of shares. That's a lot of money, and no small incentive to work hard. Those holdings account for over 29% of the company; visible skin in the game.

Should You Add DAIHAN Scientific To Your Watchlist?

You can't deny that DAIHAN Scientific has grown its earnings per share at a very impressive rate. That's attractive. 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. We should say that we've discovered 2 warning signs for DAIHAN Scientific that you should be aware of before investing here.

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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