Does Axis Bank (NSE:AXISBANK) Deserve A Spot On Your Watchlist?

By
Simply Wall St
Published
April 14, 2022
NSEI:AXISBANK
Source: Shutterstock

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. 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 Axis Bank (NSE:AXISBANK). 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 Axis Bank

Axis Bank's Earnings Per Share Are Growing.

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. I, for one, am blown away by the fact that Axis Bank has grown EPS by 39% per year, over the last three years. That sort of growth never lasts long, but like a shooting star it is well worth watching when it happens.

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. I note that Axis Bank's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Axis Bank maintained stable EBIT margins over the last year, all while growing revenue 96% to ₹380b. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

earnings-and-revenue-history
NSEI:AXISBANK Earnings and Revenue History April 14th 2022

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 Axis Bank's balance sheet strength, before getting too excited.

Are Axis Bank Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a ₹2.4t company like Axis Bank. But we are reassured by the fact they have invested in the company. Indeed, they hold ₹3.1b worth of its stock. That's a lot of money, and no small incentive to work hard. Even though that's only about 0.1% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. I discovered that the median total compensation for the CEOs of companies like Axis Bank, with market caps over ₹609b, is about ₹89m.

Axis Bank offered total compensation worth ₹65m to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.

Does Axis Bank Deserve A Spot On Your Watchlist?

Axis Bank's earnings per share have taken off like a rocket aimed right at the moon. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The sharp increase in earnings could signal good business momentum. Axis Bank certainly ticks a few of my boxes, so I think it's probably well worth further consideration. It is worth noting though that we have found 1 warning sign for Axis Bank that you need to take into consideration.

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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