Here's Why Krishna Defence and Allied Industries (NSE:KRISHNADEF) Has Caught The Eye Of Investors

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Krishna Defence and Allied Industries (NSE:KRISHNADEF). 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 Krishna Defence and Allied Industries

Krishna Defence and Allied Industries' Improving Profits

In the last three years Krishna Defence and Allied Industries' 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. Krishna Defence and Allied Industries' EPS shot up from ₹2.93 to ₹4.63; a result that's bound to keep shareholders happy. That's a commendable gain of 58%.

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 Krishna Defence and Allied Industries achieved similar EBIT margins to last year, revenue grew by a solid 28% to ₹637m. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

Since Krishna Defence and Allied Industries is no giant, with a market capitalisation of ₹2.2b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Krishna Defence and Allied Industries Insiders Aligned With All Shareholders?

Theory would suggest that it's an encouraging sign to see high insider ownership of a company, since it ties company performance directly to the financial success of its management. So those who are interested in Krishna Defence and Allied Industries will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. Indeed, with a collective holding of 61%, company insiders are in control and have plenty of capital behind the venture. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. In terms of absolute value, insiders have ₹1.4b invested in the business, at the current share price. So there's plenty there to keep them focused!

Should You Add Krishna Defence and Allied Industries To Your Watchlist?

For growth investors, Krishna Defence and Allied Industries' raw rate of earnings growth is a beacon in the night. With EPS growth rates like that, it's hardly surprising to see company higher-ups place confidence in the company through continuing to hold a significant investment. The growth and insider confidence is looked upon well and so it's worthwhile to investigate further with a view to discern the stock's true value. However, before you get too excited we've discovered 3 warning signs for Krishna Defence and Allied Industries (1 is significant!) that you should be aware of.

Although Krishna Defence and Allied Industries certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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.