We Ran A Stock Scan For Earnings Growth And Aaron Industries (NSE:AARON) Passed With Ease

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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Aaron Industries (NSE:AARON). 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 Aaron Industries

How Fast Is Aaron Industries Growing Its Earnings Per Share?

Over the last three years, Aaron Industries has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. As a result, we'll zoom in on growth over the last year, instead. In impressive fashion, Aaron Industries' EPS grew from ₹2.75 to ₹5.00, over the previous 12 months. It's not often a company can achieve year-on-year growth of 82%. That could be a sign that the business has reached a true inflection point.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. EBIT margins for Aaron Industries remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 68% to ₹483m. That's a real positive.

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.

Since Aaron Industries is no giant, with a market capitalisation of ₹1.9b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Aaron Industries Insiders Aligned With All Shareholders?

Theory would suggest that it's an encouraging sign to see high insider ownership of a company, since it ties company performance directly to the financial success of its management. So as you can imagine, the fact that Aaron Industries insiders own a significant number of shares certainly is appealing. In fact, they own 75% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. With that sort of holding, insiders have about ₹1.4b riding on the stock, at current prices. That's nothing to sneeze at!

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, you'd argue that they are indeed. The median total compensation for CEOs of companies similar in size to Aaron Industries, with market caps under ₹16b is around ₹3.6m.

The CEO of Aaron Industries was paid just ₹2.6m in total compensation for the year ending March 2022. You could consider this pay as somewhat symbolic, which suggests the CEO does not need a lot of compensation to stay motivated. 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. It can also be a sign of good governance, more generally.

Does Aaron Industries Deserve A Spot On Your Watchlist?

Aaron Industries' earnings per share growth have been climbing higher at an appreciable rate. 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. Aaron Industries certainly ticks a few boxes, so we think it's probably well worth further consideration. However, before you get too excited we've discovered 4 warning signs for Aaron Industries (1 is concerning!) that you should be aware of.

Although Aaron Industries certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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.