Here's Why We Think IDFC First Bank (NSE:IDFCFIRSTB) Might Deserve Your Attention Today

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. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

In contrast to all that, many investors prefer to focus on companies like IDFC First Bank (NSE:IDFCFIRSTB), which has not only revenues, but also profits. While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

Check out our latest analysis for IDFC First Bank

How Fast Is IDFC First Bank Growing Its Earnings Per Share?

In business, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS) performance. Which is why EPS growth is looked upon so favourably. It is awe-striking that IDFC First Bank's EPS went from ₹0.21 to ₹3.75 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company. Could this be a sign that the business has reached 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. It's noted that IDFC First 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 IDFC First Bank remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 59% to ₹154b. That's a real positive.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

Fortunately, we've got access to analyst forecasts of IDFC First Bank's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are IDFC First Bank Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. 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.

Over the preceding 12 months, we see that company insiders sold ₹1.0m worth of IDFC First Bank stock. On the other hand, company insider Dhaval Patel paid ₹3.6m for shares, at a price of about ₹49.21 per share. And that's a reason to be optimistic.

On top of the insider buying, it's good to see that IDFC First Bank insiders have a valuable investment in the business. As a matter of fact, their holding is valued at ₹2.9b. That's a lot of money, and no small incentive to work hard. While their ownership only accounts for 0.5%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because IDFC First Bank's CEO, Vembu Vaidyanathan, is paid at a relatively modest level when compared to other CEOs for companies of this size. Our analysis has discovered that the median total compensation for the CEOs of companies like IDFC First Bank with market caps between ₹331b and ₹992b is about ₹69m.

IDFC First Bank offered total compensation worth ₹44m to its CEO in the year to March 2022. That seems pretty reasonable, especially given it's below the median for similar sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is IDFC First Bank Worth Keeping An Eye On?

IDFC First Bank's earnings per share have been soaring, with growth rates sky high. The cherry on top is that insiders own a bunch of shares, and one has been buying more. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe IDFC First Bank deserves timely attention. You still need to take note of risks, for example - IDFC First Bank has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

The good news is that IDFC First Bank is not the only growth stock with insider buying. Here's a list of them... 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.