With EPS Growth And More, Mazda (NSE:MAZDA) Is Interesting

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Mazda (NSE:MAZDA). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

View our latest analysis for Mazda

How Quickly Is Mazda Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. Impressively, Mazda has grown EPS by 24% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Unfortunately, Mazda's revenue dropped 15% last year, but the silver lining is that EBIT margins improved from 11% to 15%. That falls short of ideal.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

Since Mazda is no giant, with a market capitalization of ₹2.3b, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Mazda Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Like a sturdy phalanx Mazda insiders have stood united by refusing to sell shares over the last year. But my excitement comes from the ₹11m that MD & Executive Director Sorab Mody spent buying shares (at an average price of about ₹447).

And the insider buying isn't the only sign of alignment between shareholders and the board, since Mazda insiders own more than a third of the company. Indeed, with a collective holding of 54%, company insiders are in control and have plenty of capital behind the venture. To me 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 ₹1.3b riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!

Is Mazda Worth Keeping An Eye On?

You can't deny that Mazda has grown its earnings per share at a very impressive rate. That's attractive. Better still, insiders own a large chunk of the company and one has even been buying more shares. So it's fair to say I think this stock may well deserve a spot on your watchlist. What about risks? Every company has them, and we've spotted 3 warning signs for Mazda you should know about.

The good news is that Mazda is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!

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. 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.
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