Here's Why Shanthi Gears (NSE:SHANTIGEAR) 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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. 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.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Shanthi Gears (NSE:SHANTIGEAR). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Shanthi Gears with the means to add long-term value to shareholders.

View our latest analysis for Shanthi Gears

Shanthi Gears' Improving Profits

In the last three years Shanthi Gears' 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. So it would be better to isolate the growth rate over the last year for our analysis. Shanthi Gears' EPS shot up from ₹7.30 to ₹9.93; a result that's bound to keep shareholders happy. That's a impressive gain of 36%.

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. While we note Shanthi Gears achieved similar EBIT margins to last year, revenue grew by a solid 22% to ₹4.9b. That's progress.

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Shanthi Gears Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. Shareholders will be pleased by the fact that insiders own Shanthi Gears shares worth a considerable sum. As a matter of fact, their holding is valued at ₹1.7b. That's a lot of money, and no small incentive to work hard. While their ownership only accounts for 4.0%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.

Does Shanthi Gears Deserve A Spot On Your Watchlist?

You can't deny that Shanthi Gears has grown its earnings per share at a very impressive rate. That's attractive. With EPS growth rates like that, it's hardly surprising to see company higher-ups place confidence in the company through continuing to hold a significant investment. Fast growth and confident insiders should be enough to warrant further research, so it would seem that it's a good stock to follow. However, before you get too excited we've discovered 1 warning sign for Shanthi Gears that you should be aware of.

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 free list of them here.

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.