Here's Why We Think Latteys Industries (NSE:LATTEYS) Might Deserve Your Attention Today

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

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

How Fast Is Latteys Industries Growing Its Earnings Per Share?

Over the last three years, Latteys Industries has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. Thus, it makes sense to focus on more recent growth rates, instead. Outstandingly, Latteys Industries' EPS shot from ₹0.50 to ₹1.20, over the last year. It's a rarity to see 143% year-on-year growth like that. That could be a sign that the business has reached a true inflection point.

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. Latteys Industries maintained stable EBIT margins over the last year, all while growing revenue 32% to ₹489m. That's progress.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

Latteys Industries isn't a huge company, given its market capitalisation of ₹1.7b. That makes it extra important to check on its balance sheet strength.

Are Latteys 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 we're pleased to report that Latteys Industries insiders own a meaningful share of the business. Indeed, with a collective holding of 78%, company insiders are in control and have plenty of capital behind the venture. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. With that sort of holding, insiders have about ₹1.3b 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. Well, based on the CEO pay, you'd argue that they are indeed. The median total compensation for CEOs of companies similar in size to Latteys Industries, with market caps under ₹16b is around ₹3.6m.

The CEO of Latteys Industries was paid just ₹1.9m in total compensation for the year ending March 2022. You could consider this pay as somewhat symbolic, which suggests the CEO does not need a lot of compensation to stay motivated. 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.

Does Latteys Industries Deserve A Spot On Your Watchlist?

Latteys Industries' earnings per share growth have been climbing higher at an appreciable rate. An added bonus for those interested is that management hold a heap of stock and the CEO pay is quite reasonable, illustrating good cash management. The drastic earnings growth indicates the business is going from strength to strength. Hopefully a trend that continues well into the future. Big growth can make big winners, so the writing on the wall tells us that Latteys Industries is worth considering carefully. What about risks? Every company has them, and we've spotted 4 warning signs for Latteys Industries (of which 2 can't be ignored!) you should know about.

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.

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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.