We Ran A Stock Scan For Earnings Growth And Servotech Power Systems (NSE:SERVOTECH) Passed With Ease

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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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 this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

See our latest analysis for Servotech Power Systems

Servotech Power Systems' Improving Profits

Over the last three years, Servotech Power Systems has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. As a result, we'll zoom in on growth over the last year, instead. In impressive fashion, Servotech Power Systems' EPS grew from ₹0.30 to ₹0.68, over the previous 12 months. It's not often a company can achieve year-on-year growth of 123%. That could be a sign that the business has reached a true inflection point.

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. While we note Servotech Power Systems achieved similar EBIT margins to last year, revenue grew by a solid 61% to ₹3.4b. That's encouraging news for the company!

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

Since Servotech Power Systems is no giant, with a market capitalisation of ₹20b, you should definitely check its cash and debt before getting too excited about its prospects.

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 those who are interested in Servotech Power Systems will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. Indeed, with a collective holding of 60%, 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. With that sort of holding, insiders have about ₹12b riding on the stock, at current prices. So there's plenty there to keep them focused!

Does Servotech Power Systems Deserve A Spot On Your Watchlist?

Servotech Power Systems' earnings per share growth have been climbing higher at an appreciable rate. That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. So based on this quick analysis, we do think it's worth considering Servotech Power Systems for a spot on your watchlist. You should always think about risks though. Case in point, we've spotted 2 warning signs for Servotech Power Systems you should be aware of.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in IN with promising growth potential and insider confidence.

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.