Here's Why Servotech Power Systems (NSE:SERVOTECH) Has Caught The Eye Of Investors

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.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Servotech Power Systems (NSE:SERVOTECH). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Servotech Power Systems with the means to add long-term value to shareholders.

See our latest analysis for Servotech Power Systems

Servotech Power Systems' Improving Profits

In the last three years Servotech Power Systems' earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. Thus, it makes sense to focus on more recent growth rates, instead. Servotech Power Systems has grown its trailing twelve month EPS from ₹0.52 to ₹0.55, in the last year. That's a fair increase of 6.4%.

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. EBIT margins for Servotech Power Systems remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 27% to ₹3.5b. 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. For finer detail, click on the image.

Servotech Power Systems isn't a huge company, given its market capitalisation of ₹21b. That makes it extra important to check on its balance sheet strength.

Are Servotech Power Systems Insiders Aligned With All Shareholders?

Theory would suggest that it's an encouraging sign to see high insider ownership of a company, since it ties company performance directly to the financial success of its management. So as you can imagine, the fact that Servotech Power Systems insiders own a significant number of shares certainly is appealing. Indeed, with a collective holding of 52%, company insiders are in control and have plenty of capital behind the venture. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. To give you an idea, the value of insiders' holdings in the business are valued at ₹11b at the current share price. That should be more than enough to keep them focussed on creating shareholder value!

Should You Add Servotech Power Systems To Your Watchlist?

One positive for Servotech Power Systems is that it is growing EPS. That's nice to see. To add an extra spark to the fire, significant insider ownership in the company is another highlight. That combination is very appealing. So yes, we do think the stock is worth keeping an eye on. We should say that we've discovered 2 warning signs for Servotech Power Systems that you should be aware of before investing here.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of Indian companies which have demonstrated growth backed by significant insider holdings.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com