Here's Why We Think Data Patterns (India) (NSE:DATAPATTNS) 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. 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 Data Patterns (India) (NSE:DATAPATTNS). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Data Patterns (India) with the means to add long-term value to shareholders.

View our latest analysis for Data Patterns (India)

Data Patterns (India)'s Earnings Per Share Are Growing

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Impressively, Data Patterns (India) has grown EPS by 32% per year, compound, in the last three years. This has no doubt fuelled the optimism that sees the stock trading on a high multiple of earnings.

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. Data Patterns (India) shareholders can take confidence from the fact that EBIT margins are up from 36% to 40%, and revenue is growing. That's great to see, on both counts.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Data Patterns (India)'s future profits.

Are Data Patterns (India) 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. 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.

The good news for Data Patterns (India) is that one insider has illustrated their belief in the company's future with a huge purchase of shares in the last 12 months. Specifically, the Non-Executive & Non-Independent Director, Mathew Cyriac, accumulated ₹1.3b worth of shares at a price of ₹1,837. Seeing such high conviction in the company is a huge positive for shareholders and should instil confidence in their mission.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Data Patterns (India) insiders own more than a third of the company. To be exact, company insiders hold 55% of the company, so their decisions have a significant impact on their investments. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. ₹84b That means they have plenty of their own capital riding on the performance of the business!

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. The cherry on top is that the CEO, Srinivasagopalan Rangarajan is paid comparatively modestly to CEOs at similar sized companies. The median total compensation for CEOs of companies similar in size to Data Patterns (India), with market caps between ₹84b and ₹269b, is around ₹40m.

Data Patterns (India)'s CEO took home a total compensation package of ₹9.7m in the year prior to March 2024. First impressions seem to indicate a compensation policy that is favourable to shareholders. 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.

Does Data Patterns (India) Deserve A Spot On Your Watchlist?

For growth investors, Data Patterns (India)'s raw rate of earnings growth is a beacon in the night. On top of that, insiders own a significant piece of the pie when it comes to the company's stock, and one has been buying more. Astute investors will want to keep this stock on watch. It is worth noting though that we have found 1 warning sign for Data Patterns (India) that you need to take into consideration.

Keen growth investors love to see insider activity. Thankfully, Data Patterns (India) isn't the only one. You can see a a curated list of Indian companies which have exhibited consistent growth accompanied by high insider ownership.

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.