If EPS Growth Is Important To You, Lokesh Machines (NSE:LOKESHMACH) Presents An Opportunity

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. 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.

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 Lokesh Machines (NSE:LOKESHMACH). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

Check out our latest analysis for Lokesh Machines

How Fast Is Lokesh Machines Growing Its Earnings Per Share?

Over the last three years, Lokesh Machines 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. As a result, we'll zoom in on growth over the last year, instead. Lokesh Machines' EPS shot up from ₹3.89 to ₹5.43; a result that's bound to keep shareholders happy. That's a commendable gain of 40%.

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. While we note Lokesh Machines achieved similar EBIT margins to last year, revenue grew by a solid 9.8% to ₹2.4b. That's encouraging news for the company!

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

Lokesh Machines isn't a huge company, given its market capitalisation of ₹3.8b. That makes it extra important to check on its balance sheet strength.

Are Lokesh Machines 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 those who are interested in Lokesh Machines will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. In fact, they own 56% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. With that sort of holding, insiders have about ₹2.1b riding on the stock, at current prices. That's nothing to sneeze at!

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. For companies with market capitalisations under ₹17b, like Lokesh Machines, the median CEO pay is around ₹3.2m.

The CEO of Lokesh Machines was paid just ₹1.2m in total compensation for the year ending March 2023. This could be considered a token amount, and indicates that the company does not need to use payment to motivate the CEO - that is often a good sign. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is Lokesh Machines Worth Keeping An Eye On?

If you believe that share price follows earnings per share you should definitely be delving further into Lokesh Machines' strong EPS growth. If that's not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. This may only be a fast rundown, but the key takeaway is that Lokesh Machines is worth keeping an eye on. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for Lokesh Machines (1 is a bit concerning) you should be aware of.

Although Lokesh Machines 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.