Do Ocean Plastics's (TPE:1321) Earnings Warrant Your Attention?

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Ocean Plastics (TPE:1321). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for Ocean Plastics

Ocean Plastics's Improving Profits

In the last three years Ocean Plastics's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. Thus, it makes sense to focus on more recent growth rates, instead. Like a firecracker arcing through the night sky, Ocean Plastics's EPS shot from NT$0.37 to NT$1.03, over the last year. Year on year growth of 182% is certainly a sight to behold.

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. This approach makes Ocean Plastics look pretty good, on balance; although revenue is flattish, EBIT margins improved from -2.2% to 2.2% in the last year. That's a real positive.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

Since Ocean Plastics is no giant, with a market capitalization of NT$7.9b, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Ocean Plastics Insiders Aligned With All Shareholders?

It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. As a result, I'm encouraged by the fact that insiders own Ocean Plastics shares worth a considerable sum. Indeed, they hold NT$339m worth of its stock. That's a lot of money, and no small incentive to work hard. Despite being just 4.3% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Does Ocean Plastics Deserve A Spot On Your Watchlist?

Ocean Plastics's earnings have taken off like any random crypto-currency did, back in 2017. That sort of growth is nothing short of eye-catching, and the large investment held by insiders certainly brightens my view of the company. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So to my mind Ocean Plastics is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. You should always think about risks though. Case in point, we've spotted 1 warning sign for Ocean Plastics you should be aware of.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

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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