Here's Why We Think Somi Conveyor Beltings (NSE:SOMICONVEY) Is Well Worth Watching

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone 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.

In contrast to all that, I prefer to spend time on companies like Somi Conveyor Beltings (NSE:SOMICONVEY), which has not only revenues, but also profits. While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

View our latest analysis for Somi Conveyor Beltings

Somi Conveyor Beltings's Earnings Per Share Are Growing.

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. It's no surprise, then, that I like to invest in companies with EPS growth. I, for one, am blown away by the fact that Somi Conveyor Beltings has grown EPS by 55% per year, over the last three years. While that sort of growth rate isn't sustainable for long, it certainly catches my attention; like a crow with a sparkly stone.

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. Unfortunately, Somi Conveyor Beltings's revenue dropped 41% last year, but the silver lining is that EBIT margins improved from 8.7% to 20%. That's not ideal.

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

Somi Conveyor Beltings isn't a huge company, given its market capitalization of ₹394m. That makes it extra important to check on its balance sheet strength.

Are Somi Conveyor Beltings Insiders Aligned With All Shareholders?

Personally, I like to see high insider ownership of a company, since it suggests that it will be managed in the interests of shareholders. So as you can imagine, the fact that Somi Conveyor Beltings insiders own a significant number of shares certainly appeals to me. In fact, they own 63% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes me think they will be incentivised to plan for the long term - something I like to see. Of course, Somi Conveyor Beltings is a very small company, with a market cap of only ₹394m. That means insiders only have ₹250m worth of shares, despite the large proportional holding. That might not be a huge sum but it should be enough to keep insiders motivated!

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, I'd say they are indeed. For companies with market capitalizations under ₹15b, like Somi Conveyor Beltings, the median CEO pay is around ₹3.2m.

The Somi Conveyor Beltings CEO received total compensation of only ₹1.9m in the year to . You could consider this pay as somewhat symbolic, which suggests the CEO does not need a lot of compensation to stay motivated. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. I'd also argue reasonable pay levels attest to good decision making more generally.

Should You Add Somi Conveyor Beltings To Your Watchlist?

Somi Conveyor Beltings's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The sharp increase in earnings could signal good business momentum. Somi Conveyor Beltings certainly ticks a few of my boxes, so I think it's probably well worth further consideration. Even so, be aware that Somi Conveyor Beltings is showing 3 warning signs in our investment analysis , and 1 of those is significant...

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

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

When trading Somi Conveyor Beltings or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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