Stock Analysis

Does Kabra Extrusiontechnik (NSE:KABRAEXTRU) Deserve A Spot On Your Watchlist?

Source: Shutterstock

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.

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

See our latest analysis for Kabra Extrusiontechnik

Kabra Extrusiontechnik's Earnings Per Share Are Growing

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That means EPS growth is considered a real positive by most successful long-term investors. We can see that in the last three years Kabra Extrusiontechnik grew its EPS by 15% per year. That's a pretty good rate, if the company can sustain it.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. On the revenue front, Kabra Extrusiontechnik has done well over the past year, growing revenue by 87% to ₹6.5b but EBIT margin figures were less stellar, seeing a decline over the last 12 months. So it seems the future may hold further growth, especially if EBIT margins can remain steady.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

NSEI:KABRAEXTRU Earnings and Revenue History March 17th 2023

Kabra Extrusiontechnik isn't a huge company, given its market capitalisation of ₹17b. That makes it extra important to check on its balance sheet strength.

Are Kabra Extrusiontechnik Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So as you can imagine, the fact that Kabra Extrusiontechnik insiders own a significant number of shares certainly is appealing. Owning 47% of the company, insiders have plenty riding on the performance of the the share price. This should be a welcoming sign for investors because it suggests that the people making the decisions are also impacted by their choices. With that sort of holding, insiders have about ₹8.0b riding on the stock, at current prices. So there's plenty there to keep them focused!

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. A brief analysis of the CEO compensation suggests they are. The median total compensation for CEOs of companies similar in size to Kabra Extrusiontechnik, with market caps between ₹8.3b and ₹33b, is around ₹18m.

Kabra Extrusiontechnik offered total compensation worth ₹13m to its CEO in the year to March 2022. That seems pretty reasonable, especially given it's below the median for similar 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. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add Kabra Extrusiontechnik To Your Watchlist?

One important encouraging feature of Kabra Extrusiontechnik is that it is growing profits. The growth of EPS may be the eye-catching headline for Kabra Extrusiontechnik, but there's more to bring joy for shareholders. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. Don't forget that there may still be risks. For instance, we've identified 4 warning signs for Kabra Extrusiontechnik that you should be aware of.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Valuation is complex, but we're helping make it simple.

Find out whether Kabra Extrusiontechnik is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis