Here's Why We Think Samvardhana Motherson International (NSE:MOTHERSON) Is Well Worth Watching

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. 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. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Samvardhana Motherson International (NSE:MOTHERSON). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Samvardhana Motherson International with the means to add long-term value to shareholders.

Check out our latest analysis for Samvardhana Motherson International

Samvardhana Motherson International's Improving Profits

In the last three years Samvardhana Motherson International's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. Thus, it makes sense to focus on more recent growth rates, instead. In impressive fashion, Samvardhana Motherson International's EPS grew from ₹0.96 to ₹2.82, over the previous 12 months. It's a rarity to see 193% year-on-year growth like that. Shareholders will be hopeful that this is a sign of the company reaching an inflection point.

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 Samvardhana Motherson International achieved similar EBIT margins to last year, revenue grew by a solid 28% to ₹882b. That's progress.

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 Samvardhana Motherson International's forecast profits?

Are Samvardhana Motherson International Insiders Aligned With All Shareholders?

Owing to the size of Samvardhana Motherson International, we wouldn't expect insiders to hold a significant proportion of the company. But we do take comfort from the fact that they are investors in the company. We note that their impressive stake in the company is worth ₹111b. This totals to 14% of shares in the company. Enough to lead management's decision making process down a path that brings the most benefit to shareholders. So there is opportunity here to invest in a company whose management have tangible incentives to deliver.

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. A brief analysis of the CEO compensation suggests they are. The median total compensation for CEOs of companies similar in size to Samvardhana Motherson International, with market caps between ₹333b and ₹998b, is around ₹57m.

Samvardhana Motherson International's CEO took home a total compensation package worth ₹39m in the year leading up to March 2023. That comes in below the average for similar sized companies and seems pretty reasonable. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.

Does Samvardhana Motherson International Deserve A Spot On Your Watchlist?

Samvardhana Motherson International's earnings have taken off in quite an impressive fashion. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The strong EPS improvement suggests the businesses is humming along. Samvardhana Motherson International certainly ticks a few boxes, so we think it's probably well worth further consideration. It's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Samvardhana Motherson International , and understanding them should be part of your investment process.

Although Samvardhana Motherson International certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with insider buying, then check out this handpicked selection of Indian companies that not only boast of strong growth but have also seen recent insider buying..

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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.