Here's Why We Think BF Utilities (NSE:BFUTILITIE) Is Well Worth Watching

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like BF Utilities (NSE:BFUTILITIE). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

See our latest analysis for BF Utilities

BF Utilities' Improving Profits

BF Utilities has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. As a result, we'll zoom in on growth over the last year, instead. BF Utilities' EPS has risen over the last 12 months, growing from ₹31.27 to ₹36.65. This amounts to a 17% gain; a figure that shareholders will be pleased to see.

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. While BF Utilities did well to grow revenue over the last year, EBIT margins were dampened at the same time. So if EBIT margins can stabilize, this top-line growth should pay off for shareholders.

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

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

Are BF Utilities Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

It's nice to see that there have been no reports of any insiders selling shares in BF Utilities in the previous 12 months. With that in mind, it's heartening that Shivakumar Kheny, the company insider of the company, paid ₹3.8m for shares at around ₹382 each. It seems that at least one insider is prepared to show the market there is potential within BF Utilities.

Recent insider purchases of BF Utilities stock is not the only way management has kept the interests of the general public shareholders in mind. Specifically, the CEO is paid quite reasonably for a company of this size. The median total compensation for CEOs of companies similar in size to BF Utilities, with market caps between ₹17b and ₹67b, is around ₹22m.

BF Utilities offered total compensation worth ₹13m to its CEO in the year to March 2023. That is actually below the median for CEO's of similarly 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is BF Utilities Worth Keeping An Eye On?

One important encouraging feature of BF Utilities is that it is growing profits. And there's more to BF Utilities, with the insider buying and modest CEO pay being a great look for those with an eye on the company. All things considered, BF Utilities is certainly displaying its merits and is worthy of taking research to the next step. We don't want to rain on the parade too much, but we did also find 2 warning signs for BF Utilities (1 is a bit concerning!) that you need to be mindful of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of BF Utilities, you'll probably love this curated collection of companies in IN that have witnessed growth alongside 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.