Here's Why We Think Elgi Equipments (NSE:ELGIEQUIP) Might Deserve Your Attention Today

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. 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.

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 Elgi Equipments (NSE:ELGIEQUIP). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Elgi Equipments with the means to add long-term value to shareholders.

View our latest analysis for Elgi Equipments

How Fast Is Elgi Equipments Growing Its Earnings Per Share?

In the last three years Elgi Equipments' 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. As a result, we'll zoom in on growth over the last year, instead. Elgi Equipments' EPS skyrocketed from ₹8.65 to ₹12.82, in just one year; a result that's bound to bring a smile to shareholders. That's a commendable gain of 48%.

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. While we note Elgi Equipments achieved similar EBIT margins to last year, revenue grew by a solid 8.7% to ₹32b. That's a real positive.

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.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Elgi Equipments' future EPS 100% free.

Are Elgi Equipments Insiders Aligned With All Shareholders?

It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. So it is good to see that Elgi Equipments insiders have a significant amount of capital invested in the stock. We note that their impressive stake in the company is worth ₹26b. Coming in at 13% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. So there is opportunity here to invest in a company whose management have tangible incentives to deliver.

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. Our quick analysis into CEO remuneration would seem to indicate they are. The median total compensation for CEOs of companies similar in size to Elgi Equipments, with market caps between ₹167b and ₹534b, is around ₹47m.

The CEO of Elgi Equipments only received ₹21m in total compensation for the year ending March 2023. 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.

Should You Add Elgi Equipments To Your Watchlist?

You can't deny that Elgi Equipments has grown its earnings per share at a very impressive rate. That's attractive. If that's not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. The overarching message here is that Elgi Equipments has underlying strengths that make it worth a look at. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Elgi Equipments , and understanding it should be part of your investment process.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in IN with promising growth potential and insider confidence.

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.