Does Johnson Controls-Hitachi Air Conditioning India (NSE:JCHAC) Deserve A Spot On Your Watchlist?

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.

So if you’re like me, you might be more interested in profitable, growing companies, like Johnson Controls-Hitachi Air Conditioning India (NSE:JCHAC). 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.

See our latest analysis for Johnson Controls-Hitachi Air Conditioning India

How Quickly Is Johnson Controls-Hitachi Air Conditioning India Increasing Earnings Per Share?

As one of my mentors once told me, share price follows earnings per share (EPS). It’s no surprise, then, that I like to invest in companies with EPS growth. As a tree reaches steadily for the sky, Johnson Controls-Hitachi Air Conditioning India’s EPS has grown 20% each year, compound, over three years. As a result, we can understand why the stock trades on a high multiple of trailing twelve month earnings.

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. While we note Johnson Controls-Hitachi Air Conditioning India’s EBIT margins were flat over the last year, revenue grew by a solid 10% to ₹24b. That’s progress.

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

NSEI:JCHAC Income Statement April 8th 2020
NSEI:JCHAC Income Statement April 8th 2020

While it’s always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Johnson Controls-Hitachi Air Conditioning India’s balance sheet strength, before getting too excited.

Are Johnson Controls-Hitachi Air Conditioning India Insiders Aligned With All Shareholders?

I always like to check up on CEO compensation, because I think that reasonable pay levels, around or below the median, can be a sign that shareholder interests are well considered. I discovered that the median total compensation for the CEOs of companies like Johnson Controls-Hitachi Air Conditioning India with market caps between ₹30b and ₹122b is about ₹36m.

The Johnson Controls-Hitachi Air Conditioning India CEO received ₹19m in compensation for the year ending . That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.

Is Johnson Controls-Hitachi Air Conditioning India Worth Keeping An Eye On?

For growth investors like me, Johnson Controls-Hitachi Air Conditioning India’s raw rate of earnings growth is a beacon in the night. With swiftly growing earnings, it probably has its best days ahead, and the modest CEO pay suggests the company is careful with cash. So I’d venture it may well deserve a spot on your watchlist, or even a little further research. What about risks? Every company has them, and we’ve spotted 1 warning sign for Johnson Controls-Hitachi Air Conditioning India you should know about.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

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

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.