Here's Why We Think Salzer Electronics (NSE:SALZERELEC) Is Well Worth Watching

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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.

In contrast to all that, many investors prefer to focus on companies like Salzer Electronics (NSE:SALZERELEC), which has not only revenues, but also profits. 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.

See our latest analysis for Salzer Electronics

How Quickly Is Salzer Electronics Increasing Earnings Per Share?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Shareholders will be happy to know that Salzer Electronics' EPS has grown 19% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Salzer Electronics maintained stable EBIT margins over the last year, all while growing revenue 18% to ₹11b. That's a real positive.

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

Since Salzer Electronics is no giant, with a market capitalisation of ₹14b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Salzer Electronics Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. 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.

Salzer Electronics top brass are certainly in sync, not having sold any shares, over the last year. But the real excitement comes from the ₹15m that Non-Executive Non-Independent Director Vishnurangaswamy Doraiswamy spent buying shares (at an average price of about ₹664). Purchases like this clue us in to the to the faith management has in the business' future.

Along with the insider buying, another encouraging sign for Salzer Electronics is that insiders, as a group, have a considerable shareholding. As a matter of fact, their holding is valued at ₹3.2b. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 23% of the company; visible skin in the game.

Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because Salzer Electronics' CEO, Rajesh Doraiswamy, is paid at a relatively modest level when compared to other CEOs for companies of this size. Our analysis has discovered that the median total compensation for the CEOs of companies like Salzer Electronics with market caps between ₹8.3b and ₹33b is about ₹17m.

Salzer Electronics offered total compensation worth ₹9.6m to its CEO in the year to March 2023. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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 Salzer Electronics Deserve A Spot On Your Watchlist?

You can't deny that Salzer Electronics has grown its earnings per share at a very impressive rate. That's attractive. Moreover, the management and board of the company hold a significant stake in the company, with one party adding to this total. So it's fair to say that 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 Salzer Electronics (of which 1 shouldn't be ignored!) you should know about.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Salzer Electronics, you'll probably love this curated collection of companies in IN that have witnessed growth alongside 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. 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.