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. And in their study titled Who Falls Prey to the Wolf of Wall Street?’ Leuz et. al. found that it is ‘quite common’ for investors to lose money by buying into ‘pump and dump’ schemes.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like UltraTech Cement (NSE:ULTRACEMCO). While that doesn’t make the shares worth buying at any price, you can’t deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
UltraTech Cement’s Earnings Per Share Are Growing.
As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. Impressively, UltraTech Cement has grown EPS by 21% per year, compound, in the last three years. As a general rule, we’d say that if a company can keep up that sort of growth, shareholders will be smiling.
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. UltraTech Cement reported flat revenue and EBIT margins over the last year. That’s not a major concern but nor does it point to the long term growth we like to see.
You can take a look at the company’s revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of UltraTech Cement’s forecast profits?
Are UltraTech Cement Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don’t know the exact thinking behind their acquisitions.
For the sake of balance, I do note UltraTech Cement insiders sold -₹2.7m worth of shares last year. But that is far less than the large ₹12m share acquisition by Chairman Kumar Birla.
I do like that insiders have been buying shares in UltraTech Cement, but there is more evidence of shareholder friendly management. Specifically, the CEO is paid quite reasonably for a company of this size. For companies with market capitalizations over ₹588b, like UltraTech Cement, the median CEO pay is around ₹100m.
UltraTech Cement offered total compensation worth ₹64m to its CEO in the year to . 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.
Should You Add UltraTech Cement To Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about UltraTech Cement’s strong EPS growth. But wait, it gets better. We have seen insider buying and the executive pay seems on the modest side of things. On balance the message seems to be that this stock is worth looking at, at least for a while. It is worth noting though that we have found 2 warning signs for UltraTech Cement that you need to take into consideration.
As a growth investor I do like to see insider buying. But UltraTech Cement isn’t the only one. You can see a 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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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.
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