With EPS Growth And More, Aaron Industries (NSE:AARON) Is Interesting

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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 Aaron Industries (NSE:AARON). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

Check out our latest analysis for Aaron Industries

Aaron Industries's Earnings Per Share Are Growing.

As one of my mentors once told me, share price follows earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. Aaron Industries managed to grow EPS by 4.6% per year, over three years. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). While we note Aaron Industries's EBIT margins were flat over the last year, revenue grew by a solid 18% to ₹239m. 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.

Aaron Industries isn't a huge company, given its market capitalization of ₹532m. That makes it extra important to check on its balance sheet strength.

Are Aaron Industries Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

We haven't seen any insiders selling Aaron Industries shares, in the last year. With that in mind, it's heartening that Karan Doshi, the Whole Time Director of the company, paid ₹2.4m for shares at around ₹22.82 each.

On top of the insider buying, we can also see that Aaron Industries insiders own a large chunk of the company. In fact, they own 87% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes me think they will be incentivised to plan for the long term - something I like to see. Of course, Aaron Industries is a very small company, with a market cap of only ₹532m. So despite a large proportional holding, insiders only have ₹464m worth of stock. That might not be a huge sum but it should be enough to keep insiders motivated!

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. That's because on our analysis the CEO, Amar Doshi, is paid less than the median for similar sized companies. For companies with market capitalizations under ₹15b, like Aaron Industries, the median CEO pay is around ₹3.0m.

The CEO of Aaron Industries was paid just ₹2.6m in total compensation for the year ending . You could consider this pay as somewhat symbolic, which suggests the CEO does not need a lot of compensation to stay motivated. 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 a culture of integrity, in a broader sense.

Does Aaron Industries Deserve A Spot On Your Watchlist?

One positive for Aaron Industries is that it is growing EPS. That's nice to see. Better yet, insiders are significant shareholders, and have been buying more shares. That makes the company a prime candidate for my watchlist - and arguably a research priority. Still, you should learn about the 4 warning signs we've spotted with Aaron Industries (including 2 which are significant) .

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Aaron Industries, you'll probably love this free list of growing companies that insiders are 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. 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.
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