Do Lungteh Shipbuilding's (TWSE:6753) Earnings Warrant Your Attention?

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and 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.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Lungteh Shipbuilding (TWSE:6753). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

Check out our latest analysis for Lungteh Shipbuilding

Lungteh Shipbuilding's Earnings Per Share Are Growing

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That makes EPS growth an attractive quality for any company. Recognition must be given to the that Lungteh Shipbuilding has grown EPS by 42% per year, over the last three years. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.

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. Unfortunately, Lungteh Shipbuilding's revenue dropped 4.3% last year, but the silver lining is that EBIT margins improved from 13% to 24%. While not disastrous, these figures could be better.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

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 Lungteh Shipbuilding's balance sheet strength, before getting too excited.

Are Lungteh Shipbuilding 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. Shareholders will be pleased by the fact that insiders own Lungteh Shipbuilding shares worth a considerable sum. As a matter of fact, their holding is valued at NT$1.3b. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 11% of the company, demonstrating a degree of high-level alignment with shareholders.

Should You Add Lungteh Shipbuilding To Your Watchlist?

Lungteh Shipbuilding's 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. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So at the surface level, Lungteh Shipbuilding is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. Now, you could try to make up your mind on Lungteh Shipbuilding by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.

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.

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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.