Here's Why I Think Tonlin Department StoreLtd (TPE:2910) Is An Interesting Stock

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 completely lacks a track record of revenue and profit. 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 Tonlin Department StoreLtd (TPE:2910). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

See our latest analysis for Tonlin Department StoreLtd

How Fast Is Tonlin Department StoreLtd Growing?

As one of my mentors once told me, share price follows earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Tonlin Department StoreLtd has managed to grow EPS by 20% per year over three years. As a result, we can understand why the stock trades on a high multiple of trailing twelve month earnings.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Tonlin Department StoreLtd's EBIT margins have actually improved by 3.3 percentage points in the last year, to reach 27%, but, on the flip side, revenue was down 3.3%. That falls short of ideal.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

Since Tonlin Department StoreLtd is no giant, with a market capitalization of NT$5.5b, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Tonlin Department StoreLtd 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. So it is good to see that Tonlin Department StoreLtd insiders have a significant amount of capital invested in the stock. With a whopping NT$1.7b worth of shares as a group, insiders have plenty riding on the company's success. That holding amounts to 30% of the stock on issue, thus making insiders influential, and aligned, owners of the business.

Is Tonlin Department StoreLtd Worth Keeping An Eye On?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Tonlin Department StoreLtd's strong EPS growth. I think that EPS growth is something to boast of, and it doesn't surprise me that insiders are holding on to a considerable chunk of shares. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. What about risks? Every company has them, and we've spotted 3 warning signs for Tonlin Department StoreLtd (of which 1 can't be ignored!) you should know about.

Although Tonlin Department StoreLtd certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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

If you’re looking to trade Tonlin Department StoreLtd, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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