Does Salzer Electronics (NSE:SALZERELEC) Deserve A Spot On Your Watchlist?

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. 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 can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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 Salzer Electronics (NSE:SALZERELEC). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Salzer Electronics with the means to add long-term value to shareholders.

View our latest analysis for Salzer Electronics

How Quickly Is Salzer Electronics Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Shareholders will be happy to know that Salzer Electronics' EPS has grown 36% each year, compound, over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

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. EBIT margins for Salzer Electronics remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 16% to ₹13b. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

Since Salzer Electronics is no giant, with a market capitalisation of ₹21b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Salzer Electronics Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

It's worth noting that there was some insider selling of Salzer Electronics shares last year, worth ₹785k. But that doesn't beat the large ₹14m share acquisition by Non-Executive Non-Independent Director Vishnurangaswamy Doraiswamy. So, on balance, that's positive.

The good news, alongside the insider buying, for Salzer Electronics bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold ₹3.1b worth of its stock. This considerable investment should help drive long-term value in the business. As a percentage, this totals to 15% of the shares on issue for the business, an appreciable amount considering the market cap.

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because on our analysis the CEO, Rajesh Doraiswamy, is paid less than the median for similar sized companies. For companies with market capitalisations between ₹8.5b and ₹34b, like Salzer Electronics, the median CEO pay is around ₹15m.

Salzer Electronics' CEO took home a total compensation package worth ₹10m in the year leading up to March 2024. That is actually below the median for CEO's of similarly sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add Salzer Electronics To Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Salzer Electronics' strong EPS growth. Better still, insiders own a large chunk of the company and one has even been buying more shares. So it's fair to say that this stock may well deserve a spot on your watchlist. We should say that we've discovered 4 warning signs for Salzer Electronics (1 is a bit concerning!) that you should be aware of before investing here.

Keen growth investors love to see insider activity. Thankfully, Salzer Electronics isn't the only one. You can see a a curated list of Indian companies which have exhibited consistent growth accompanied by high insider ownership.

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.