With EPS Growth And More, Roundtop Machinery Industries (TWSE:1540) Makes An Interesting Case

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

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 Roundtop Machinery Industries (TWSE:1540). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Roundtop Machinery Industries with the means to add long-term value to shareholders.

See our latest analysis for Roundtop Machinery Industries

Roundtop Machinery Industries' Improving Profits

Over the last three years, Roundtop Machinery Industries 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. So it would be better to isolate the growth rate over the last year for our analysis. Outstandingly, Roundtop Machinery Industries' EPS shot from NT$1.04 to NT$1.84, over the last year. It's a rarity to see 77% year-on-year growth like that. The best case scenario? That the business has hit a true inflection point.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Roundtop Machinery Industries shareholders can take confidence from the fact that EBIT margins are up from 13% to 26%, and revenue is growing. That's great to see, on both counts.

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.

Since Roundtop Machinery Industries is no giant, with a market capitalisation of NT$2.7b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Roundtop Machinery Industries Insiders Aligned With All Shareholders?

It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. So it is good to see that Roundtop Machinery Industries insiders have a significant amount of capital invested in the stock. To be specific, they have NT$587m worth of shares. This considerable investment should help drive long-term value in the business. That amounts to 22% of the company, demonstrating a degree of high-level alignment with shareholders.

Does Roundtop Machinery Industries Deserve A Spot On Your Watchlist?

Roundtop Machinery Industries' earnings have taken off in quite an impressive fashion. That sort of growth is nothing short of eye-catching, and the large investment held by insiders should certainly brighten the view of the company. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. So based on this quick analysis, we do think it's worth considering Roundtop Machinery Industries for a spot on your watchlist. Don't forget that there may still be risks. For instance, we've identified 3 warning signs for Roundtop Machinery Industries that you should be aware of.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in TW with promising growth potential and insider confidence.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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

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.