Here's Why I Think IOL Chemicals and Pharmaceuticals (NSE:IOLCP) Might Deserve Your Attention Today

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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like IOL Chemicals and Pharmaceuticals (NSE:IOLCP). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for IOL Chemicals and Pharmaceuticals

IOL Chemicals and Pharmaceuticals's Improving Profits

In the last three years IOL Chemicals and Pharmaceuticals'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. As a result, I'll zoom in on growth over the last year, instead. Like a wedge-tailed eagle on the wind, IOL Chemicals and Pharmaceuticals's EPS soared from ₹54.68 to ₹70.83, in just one year. That's a impressive gain of 30%.

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. The good news is that IOL Chemicals and Pharmaceuticals is growing revenues, and EBIT margins improved by 2.8 percentage points to 29%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

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.

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 IOL Chemicals and Pharmaceuticals's balance sheet strength, before getting too excited.

Are IOL Chemicals and Pharmaceuticals 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 IOL Chemicals and Pharmaceuticals insiders have a significant amount of capital invested in the stock. To be specific, they have ₹1.9b worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 4.3% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Should You Add IOL Chemicals and Pharmaceuticals To Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about IOL Chemicals and Pharmaceuticals'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. Fast growth and confident insiders should be enough to warrant further research. So the answer is that I do think this is a good stock to follow along with. Still, you should learn about the 2 warning signs we've spotted with IOL Chemicals and Pharmaceuticals .

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.

If you’re looking to trade IOL Chemicals and Pharmaceuticals, 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@simplywallst.com.