Here's Why We Think Tonlin Department StoreLtd (TPE:2910) Is Well Worth Watching

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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

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). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. 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.

Check out our latest analysis for Tonlin Department StoreLtd

How Quickly Is Tonlin Department StoreLtd Increasing Earnings Per Share?

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. It certainly is nice to see that Tonlin Department StoreLtd has managed to grow EPS by 20% per year over three years. So it's not surprising to see the company trades on a very high multiple of (past) 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. Click on the chart to see the exact numbers.

Tonlin Department StoreLtd isn't a huge company, given its market capitalization of NT$6.4b. That makes it extra important to check on its balance sheet strength.

Are Tonlin Department StoreLtd 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. 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$2.0b 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.

Should You Add Tonlin Department StoreLtd To Your Watchlist?

You can't deny that Tonlin Department StoreLtd has grown its earnings per share at a very impressive rate. That's attractive. Further, the high level of insider ownership impresses me, and suggests that I'm not the only one who appreciates the EPS growth. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. Before you take the next step you should know about the 1 warning sign for Tonlin Department StoreLtd that we have uncovered.

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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