Here's Why We Think Emkay Taps and Cutting Tools (NSE:EMKAYTOOLS) Is Well Worth Watching

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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

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 Emkay Taps and Cutting Tools (NSE:EMKAYTOOLS). 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.

See our latest analysis for Emkay Taps and Cutting Tools

Emkay Taps and Cutting Tools' Improving Profits

Emkay Taps and Cutting Tools 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. Thus, it makes sense to focus on more recent growth rates, instead. Emkay Taps and Cutting Tools' EPS skyrocketed from ₹22.33 to ₹33.04, in just one year; a result that's bound to bring a smile to shareholders. That's a commendable gain of 48%.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. The music to the ears of Emkay Taps and Cutting Tools shareholders is that EBIT margins have grown from 35% to 44% in the last 12 months and revenues are on an upwards trend as well. Ticking those two boxes is a good sign of growth, in our book.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

Since Emkay Taps and Cutting Tools is no giant, with a market capitalisation of ₹2.9b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Emkay Taps and Cutting Tools 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. Because often, 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.

Emkay Taps and Cutting Tools top brass are certainly in sync, not having sold any shares, over the last year. But the bigger deal is that the Chairman, Ajayprakash Kanoria, paid ₹7.3m to buy shares at an average price of ₹154. It seems at least one insider has seen potential in the company's future - and they're willing to put money on the line.

These recent buys aren't the only encouraging sign for shareholders, as a look at the shareholder registry for Emkay Taps and Cutting Tools will reveal that insiders own a significant piece of the pie. To be exact, company insiders hold 67% of the company, so their decisions have a significant impact on their investments. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. With that sort of holding, insiders have about ₹2.0b riding on the stock, at current prices. So there's plenty there to keep them focused!

Should You Add Emkay Taps and Cutting Tools To Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Emkay Taps and Cutting Tools' strong EPS growth. 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. So it's fair to say that this stock may well deserve a spot on your watchlist. Still, you should learn about the 3 warning signs we've spotted with Emkay Taps and Cutting Tools (including 1 which is concerning).

Keen growth investors love to see insider buying. Thankfully, Emkay Taps and Cutting Tools isn't the only one. You can see a a free list of them here.

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.