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. But as Peter Lynch said in One Up On Wall Street, ‘Long shots almost never pay off.’
So if you’re like me, you might be more interested in profitable, growing companies, like iA (KOSDAQ:038880). 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. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
See our latest analysis for iA
iA’s Improving Profits
In the last three years iA’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 the last firework on New Year’s Eve accelerating into the sky, iA’s EPS shot from ₩9.91 to ₩26.78, over the last year. You don’t see 170% year-on-year growth like that, very often.
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. iA’s EBIT margins have actually improved by 14.3 percentage points in the last year, to reach 14%, but, on the flip side, revenue was down 13%. That falls short of ideal.
The chart below shows how the company’s bottom and top lines have progressed over time. For finer detail, click on the image.
iA isn’t a huge company, given its market capitalization of ₩276b. That makes it extra important to check on its balance sheet strength.
Are iA 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 iA shares worth a considerable sum. Indeed, they hold ₩24b worth of its stock. That’s a lot of money, and no small incentive to work hard. That amounts to 8.8% of the company, demonstrating a degree of high-level alignment with shareholders.
Should You Add iA To Your Watchlist?
iA’s earnings have taken off like any random crypto-currency did, back in 2017. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So yes, on this short analysis I do think it’s worth considering iA for a spot on your watchlist. You should always think about risks though. Case in point, we’ve spotted 2 warning signs for iA you should be aware of.
Of course, you can do well (sometimes) buying stocks that…