Here's Why We Think Depo Auto Parts Industrial (TWSE:6605) Might Deserve Your Attention Today

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Depo Auto Parts Industrial (TWSE:6605). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

View our latest analysis for Depo Auto Parts Industrial

Depo Auto Parts Industrial's Improving Profits

Over the last three years, Depo Auto Parts Industrial has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. Thus, it makes sense to focus on more recent growth rates, instead. To the delight of shareholders, Depo Auto Parts Industrial's EPS soared from NT$10.74 to NT$16.93, over the last year. That's a fantastic gain of 58%.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. The music to the ears of Depo Auto Parts Industrial shareholders is that EBIT margins have grown from 14% to 17% in the last 12 months and revenues are on an upwards trend as well. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Depo Auto Parts Industrial's balance sheet strength, before getting too excited.

Are Depo Auto Parts Industrial Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. Shareholders will be pleased by the fact that insiders own Depo Auto Parts Industrial shares worth a considerable sum. We note that their impressive stake in the company is worth NT$6.3b. This totals to 17% of shares in the company. Enough to lead management's decision making process down a path that brings the most benefit to shareholders. Very encouraging.

Is Depo Auto Parts Industrial Worth Keeping An Eye On?

If you believe that share price follows earnings per share you should definitely be delving further into Depo Auto Parts Industrial's strong EPS growth. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in Depo Auto Parts Industrial's continuing strength. Fast growth and confident insiders should be enough to warrant further research, so it would seem that it's a good stock to follow. However, before you get too excited we've discovered 2 warning signs for Depo Auto Parts Industrial that you should be aware of.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of Taiwanese companies which have demonstrated growth backed by significant insider holdings.

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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.