Stock Analysis

Does Toyo Ink Group Berhad (KLSE:TOYOVEN) Deserve A Spot On Your Watchlist?

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KLSE:TOYOVEN
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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. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Toyo Ink Group Berhad (KLSE:TOYOVEN). 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. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

Check out our latest analysis for Toyo Ink Group Berhad

How Fast Is Toyo Ink Group Berhad Growing Its Earnings Per Share?

In the last three years Toyo Ink Group Berhad'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. Thus, it makes sense to focus on more recent growth rates, instead. Like a falcon taking flight, Toyo Ink Group Berhad's EPS soared from RM0.043 to RM0.061, over the last year. That's a commendable gain of 41%.

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. Toyo Ink Group Berhad's EBIT margins are flat but, of some concern, its revenue is actually down. Suffice it to say that is not a great sign of growth.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

earnings-and-revenue-history
KLSE:TOYOVEN Earnings and Revenue History January 20th 2021

Since Toyo Ink Group Berhad is no giant, with a market capitalization of RM367m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Toyo Ink Group Berhad 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 Toyo Ink Group Berhad insiders own a meaningful share of the business. Indeed, with a collective holding of 56%, company insiders are in control and have plenty of capital behind the venture. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. With that sort of holding, insiders have about RM204m riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!

Does Toyo Ink Group Berhad Deserve A Spot On Your Watchlist?

You can't deny that Toyo Ink Group Berhad 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. What about risks? Every company has them, and we've spotted 3 warning signs for Toyo Ink Group Berhad 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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