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We think all investors should try to buy and hold high quality multi-year winners. While the best companies are hard to find, but they can generate massive returns over long periods. For example, the Tokyo Plast International Limited (NSE:TOKYOPLAST) share price is up a whopping 301% in the last half decade, a handsome return for long term holders. This just goes to show the value creation that some businesses can achieve. Also pleasing for shareholders was the 11% gain in the last three months.
View our latest analysis for Tokyo Plast International
We don’t think that Tokyo Plast International’s modest trailing twelve month profit has the market’s full attention at the moment. We think revenue is probably a better guide. Generally speaking, companies that are not judged on their (small) profits should be growing revenue quickly. As you can imagine, it’s easy to imagine a fast growing company becoming (potentially very) profitable, but when revenue growth slows, then the potential upside often seems less impressive.
In the last 5 years Tokyo Plast International saw its revenue grow at 5.9% per year. That’s not a very high growth rate considering it doesn’t make profits. So shareholders should be pretty elated with the 32% increase per year, in that time. We’ll tip our hats to that, any day, but the top-line growth isn’t particularly impressive when you compare it to other pre-profit companies. It’s not immediately obvious to us why the market has been so enthusiastic about the stock, but a more detailed look at revenue and profit trends might reveal why shareholders are optimistic.
Depicted in the graphic below, you’ll see revenue and earnings over time. If you want more detail, you can click on the chart itself.
It’s good to see that there was some significant insider buying in the last three months. That’s a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
Investors in Tokyo Plast International had a tough year, with a total loss of 50% (including dividends), against a market gain of about 0.7%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 32% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.