Does MSTC (NSE:MSTCLTD) Deserve A Spot On Your Watchlist?

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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. 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.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like MSTC (NSE:MSTCLTD). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide MSTC with the means to add long-term value to shareholders.

See our latest analysis for MSTC

How Fast Is MSTC Growing Its Earnings Per Share?

MSTC has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. As a result, we'll zoom in on growth over the last year, instead. Impressively, MSTC's EPS catapulted from ₹16.05 to ₹28.29, over the last year. It's a rarity to see 76% year-on-year growth like that.

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. MSTC shareholders can take confidence from the fact that EBIT margins are up from 17% to 27%, and revenue is growing. Ticking those two boxes is a good sign of growth, in our book.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

MSTC isn't a huge company, given its market capitalisation of ₹18b. That makes it extra important to check on its balance sheet strength.

Are MSTC Insiders Aligned With All Shareholders?

As a general rule, it's worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. The median total compensation for CEOs of companies similar in size to MSTC, with market caps between ₹8.0b and ₹32b, is around ₹15m.

MSTC's CEO took home a total compensation package of ₹5.2m in the year prior to March 2021. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.

Does MSTC Deserve A Spot On Your Watchlist?

MSTC's earnings per share have been soaring, with growth rates sky high. With increasing profits, its seems likely the business has a rosy future; and it may have hit an inflection point. At the same time the reasonable CEO compensation reflects well on the board of directors. So MSTC looks like it could be a good quality growth stock, at first glance. That's worth watching. Before you take the next step you should know about the 1 warning sign for MSTC that we have uncovered.

Although MSTC 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.