Here's Why We Think Axis Bank (NSE:AXISBANK) Is Well Worth Watching

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Axis Bank (NSE:AXISBANK). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Axis Bank with the means to add long-term value to shareholders.

Check out our latest analysis for Axis Bank

How Fast Is Axis Bank Growing?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. It certainly is nice to see that Axis Bank has managed to grow EPS by 34% per year over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

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. It's noted that Axis Bank's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. EBIT margins for Axis Bank remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 47% to ₹434b. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. 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 Axis Bank's balance sheet strength, before getting too excited.

Are Axis Bank Insiders Aligned With All Shareholders?

Owing to the size of Axis Bank, we wouldn't expect insiders to hold a significant proportion of the company. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. Indeed, they hold ₹2.9b worth of its stock. That's a lot of money, and no small incentive to work hard. Despite being just 0.1% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. Our quick analysis into CEO remuneration would seem to indicate they are. For companies with market capitalisations over ₹638b, like Axis Bank, the median CEO pay is around ₹105m.

Axis Bank's CEO took home a total compensation package worth ₹72m in the year leading up to March 2022. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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 good governance, more generally.

Does Axis Bank Deserve A Spot On Your Watchlist?

You can't deny that Axis Bank has grown its earnings per share at a very impressive rate. That's attractive. If you still have your doubts, remember too that company insiders have a considerable investment aligning themselves with the shareholders and CEO pay is quite modest compared to similarly sized companiess. The overarching message here is that Axis Bank has underlying strengths that make it worth a look at. Of course, just because Axis Bank is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

The beauty of investing is that you can invest in almost 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.

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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.