Does Jammu and Kashmir Bank (NSE:J&KBANK) Deserve A Spot On Your Watchlist?

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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 Jammu and Kashmir Bank (NSE:J&KBANK). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Jammu and Kashmir Bank with the means to add long-term value to shareholders.

Check out our latest analysis for Jammu and Kashmir Bank

How Fast Is Jammu and Kashmir Bank Growing Its Earnings Per Share?

In the last three years Jammu and Kashmir Bank'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. So it would be better to isolate the growth rate over the last year for our analysis. Impressively, Jammu and Kashmir Bank's EPS catapulted from ₹8.66 to ₹14.62, over the last year. It's not often a company can achieve year-on-year growth of 69%.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Not all of Jammu and Kashmir Bank's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. EBIT margins for Jammu and Kashmir Bank remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 13% to ₹55b. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Jammu and Kashmir Bank Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Jammu and Kashmir Bank insiders have a significant amount of capital invested in the stock. Indeed, they hold ₹2.0b worth of its stock. That's a lot of money, and no small incentive to work hard. Despite being just 1.2% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

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 Jammu and Kashmir Bank, with market caps between ₹83b and ₹265b, is around ₹37m.

Jammu and Kashmir Bank's CEO took home a total compensation package of ₹10m in the year prior to March 2023. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is Jammu and Kashmir Bank Worth Keeping An Eye On?

Jammu and Kashmir Bank's earnings per share have been soaring, with growth rates sky high. 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. Big growth can make big winners, so the writing on the wall tells us that Jammu and Kashmir Bank is worth considering carefully. We should say that we've discovered 2 warning signs for Jammu and Kashmir Bank that you should be aware of before investing here.

Although Jammu and Kashmir Bank 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.