Does Shihlin Electric & Engineering (TWSE:1503) Deserve A Spot On Your Watchlist?

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Shihlin Electric & Engineering (TWSE:1503). 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.

Check out our latest analysis for Shihlin Electric & Engineering

How Fast Is Shihlin Electric & Engineering Growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That makes EPS growth an attractive quality for any company. It certainly is nice to see that Shihlin Electric & Engineering has managed to grow EPS by 18% per year over three years. So it's not surprising to see the company trades on a very high multiple of (past) earnings.

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. Shihlin Electric & Engineering maintained stable EBIT margins over the last year, all while growing revenue 2.4% to NT$33b. That's a real positive.

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Shihlin Electric & Engineering's future EPS 100% free.

Are Shihlin Electric & Engineering Insiders Aligned With All Shareholders?

It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. So it is good to see that Shihlin Electric & Engineering insiders have a significant amount of capital invested in the stock. Holding NT$2.8b worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. This should keep them focused on creating long term value for shareholders.

Does Shihlin Electric & Engineering Deserve A Spot On Your Watchlist?

For growth investors, Shihlin Electric & Engineering's raw rate of earnings growth is a beacon in the night. This EPS growth rate is something the company should be proud of, and so it's no surprise that insiders are holding on to a considerable chunk of shares. Fast growth and confident insiders should be enough to warrant further research, so it would seem that it's a good stock to follow. We should say that we've discovered 1 warning sign for Shihlin Electric & Engineering that you should be aware of before investing here.

Although Shihlin Electric & Engineering certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of Taiwanese companies that not only boast of strong growth but have strong insider backing.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com