Stock Analysis

Here's Why We Think Servotech Power Systems (NSE:SERVOTECH) Might Deserve Your Attention Today

NSEI:SERVOTECH
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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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

In contrast to all that, many investors prefer to focus on companies like Servotech Power Systems (NSE:SERVOTECH), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

Check out the opportunities and risks within the IN Electrical industry.

How Quickly Is Servotech Power Systems Increasing Earnings Per Share?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Shareholders will be happy to know that Servotech Power Systems' EPS has grown 18% each year, compound, over three years. As a result, we can understand why the stock trades on a high multiple of trailing twelve month earnings.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Servotech Power Systems maintained stable EBIT margins over the last year, all while growing revenue 57% to ₹1.6b. That's encouraging news for the company!

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

earnings-and-revenue-history
NSEI:SERVOTECH Earnings and Revenue History October 17th 2022

Since Servotech Power Systems is no giant, with a market capitalisation of ₹3.4b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Servotech Power Systems 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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Insiders in Servotech Power Systems both added to and reduced their holdings over the preceding 12 months. All in all though, their acquisitions outweighed the amount of shares they sold off. So, on balance, the insider transactions are mildly encouraging. Zooming in, we can see that the biggest insider purchase was by MD & Executive Chairman Raman Bhatia for ₹702k worth of shares, at about ₹47.45 per share.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Servotech Power Systems insiders own more than a third of the company. In fact, they own 63% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. Intuition will tell you 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 ₹2.2b riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!

Is Servotech Power Systems Worth Keeping An Eye On?

You can't deny that Servotech Power Systems has grown its earnings per share at a very impressive rate. That's attractive. Not only that, but we can see that insiders both own a lot of, and are buying more shares in the company. These things considered, this is one stock worth watching. Before you take the next step you should know about the 2 warning signs for Servotech Power Systems that we have uncovered.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Servotech Power Systems, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Valuation is complex, but we're helping make it simple.

Find out whether Servotech Power Systems is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.