Is Now The Time To Put Taiwan Sanyo ElectricLtd (TPE:1614) On Your Watchlist?

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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 Taiwan Sanyo ElectricLtd (TPE:1614). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

Check out our latest analysis for Taiwan Sanyo ElectricLtd

How Fast Is Taiwan Sanyo ElectricLtd Growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That means EPS growth is considered a real positive by most successful long-term investors. As a tree reaches steadily for the sky, Taiwan Sanyo ElectricLtd's EPS has grown 28% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Taiwan Sanyo ElectricLtd shareholders can take confidence from the fact that EBIT margins are up from 4.5% to 7.8%, and revenue is growing. That's great to see, on both counts.

You can take a look at the company's revenue and earnings growth trend, in the chart below. 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 Taiwan Sanyo ElectricLtd's balance sheet strength, before getting too excited.

Are Taiwan Sanyo ElectricLtd Insiders Aligned With All Shareholders?

I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. As a result, I'm encouraged by the fact that insiders own Taiwan Sanyo ElectricLtd shares worth a considerable sum. To be specific, they have NT$461m worth of shares. That's a lot of money, and no small incentive to work hard. That amounts to 5.1% of the company, demonstrating a degree of high-level alignment with shareholders.

Should You Add Taiwan Sanyo ElectricLtd To Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Taiwan Sanyo ElectricLtd's strong EPS growth. Further, the high level of insider ownership impresses me, and suggests that I'm not the only one who appreciates the EPS growth. 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. We should say that we've discovered 2 warning signs for Taiwan Sanyo ElectricLtd (1 is a bit concerning!) that you should be aware of before investing here.

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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This article by Simply Wall St is general in nature. 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.
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