Stock Analysis

If EPS Growth Is Important To You, Servotech Power Systems (NSE:SERVOTECH) Presents An Opportunity

NSEI:SERVOTECH
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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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Servotech Power Systems (NSE:SERVOTECH). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

View 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. It's good to see that Servotech Power Systems' EPS has grown from ₹0.49 to ₹0.59 over twelve months. That's a 21% gain; respectable growth in the broader scheme of things.

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 47% to ₹2.1b. 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.

earnings-and-revenue-history
NSEI:SERVOTECH Earnings and Revenue History May 18th 2023

Servotech Power Systems isn't a huge company, given its market capitalisation of ₹8.6b. That makes it extra important to check on its balance sheet strength.

Are Servotech Power Systems Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So as you can imagine, the fact that Servotech Power Systems insiders own a significant number of shares certainly is appealing. To be exact, company insiders hold 58% of the company, so their decisions have a significant impact on their investments. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. With that sort of holding, insiders have about ₹5.0b riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!

Should You Add Servotech Power Systems To Your Watchlist?

One important encouraging feature of Servotech Power Systems is that it is growing profits. If that's not enough on its own, there is also the rather notable levels of insider ownership. That combination is very appealing. So yes, we do think the stock is worth keeping an eye on. It is worth noting though that we have found 3 warning signs for Servotech Power Systems (1 makes us a bit uncomfortable!) that you need to take into consideration.

Although Servotech Power Systems 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.

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.