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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In contrast to all that, I prefer to spend time on companies like Vinati Organics (NSE:VINATIORGA), which has not only revenues, but also profits. Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. 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.
How Fast Is Vinati Organics Growing?
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 makes EPS growth an attractive quality for any company. As a tree reaches steadily for the sky, Vinati Organics’s EPS has grown 30% each year, compound, over three years. As a general rule, we’d say that if a company can keep up that sort of growth, shareholders will be smiling.
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. Vinati Organics shareholders can take confidence from the fact that EBIT margins are up from 28% to 37%, and revenue is growing. That’s great to see, on both counts.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Vinati Organics’s forecast profits?
Are Vinati Organics 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 Vinati Organics shares worth a considerable sum. Indeed, they have a glittering mountain of wealth invested in it, currently valued at ₹30b. Coming in at 28% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. Very encouraging.
It’s good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, I’d say they are indeed. I discovered that the median total compensation for the CEOs of companies like Vinati Organics with market caps between ₹72b and ₹229b is about ₹42m.
The Vinati Organics CEO received total compensation of just ₹10.5m in the year to March 2019. That’s clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. 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.
Does Vinati Organics Deserve A Spot On Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Vinati Organics’s strong EPS growth. If you need more convincing beyond that EPS growth rate, don’t forget about the reasonable remuneration and the high insider ownership. Each to their own, but I think all this makes Vinati Organics look rather interesting indeed. Now, you could try to make up your mind on Vinati Organics by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
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
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