Is Now The Time To Put Somi Conveyor Beltings (NSE:SOMICONVEY) On Your Watchlist?

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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Somi Conveyor Beltings (NSE:SOMICONVEY). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Somi Conveyor Beltings with the means to add long-term value to shareholders.

See our latest analysis for Somi Conveyor Beltings

Somi Conveyor Beltings' Earnings Per Share Are Growing

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That means EPS growth is considered a real positive by most successful long-term investors. We can see that in the last three years Somi Conveyor Beltings grew its EPS by 7.2% per year. While that sort of growth rate isn't anything to write home about, it does show the business is growing.

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. On the revenue front, Somi Conveyor Beltings has done well over the past year, growing revenue by 36% to ₹653m but EBIT margin figures were less stellar, seeing a decline over the last 12 months. If EBIT margins are able to stay balanced and this revenue growth continues, then we should see brighter days ahead.

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

Somi Conveyor Beltings isn't a huge company, given its market capitalisation of ₹564m. That makes it extra important to check on its balance sheet strength.

Are Somi Conveyor Beltings 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 Somi Conveyor Beltings will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. 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 it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. Valued at only ₹564m Somi Conveyor Beltings is really small for a listed company. So despite a large proportional holding, insiders only have ₹356m worth of stock. That might not be a huge sum but it should be enough to keep insiders motivated!

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. A brief analysis of the CEO compensation suggests they are. For companies with market capitalisations under ₹16b, like Somi Conveyor Beltings, the median CEO pay is around ₹3.6m.

Somi Conveyor Beltings' CEO only received compensation totalling ₹3.2m in the year to March 2022. This total may indicate that the CEO is sacrificing take home pay for performance-based benefits, ensuring that their motivations are synonymous with strong company results. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Should You Add Somi Conveyor Beltings To Your Watchlist?

As previously touched on, Somi Conveyor Beltings is a growing business, which is encouraging. The fact that EPS is growing is a genuine positive for Somi Conveyor Beltings, but the pleasant picture gets better than that. With company insiders aligning themselves considerably with the company's success and modest CEO compensation, there's no arguments that this is a stock worth looking into. We don't want to rain on the parade too much, but we did also find 2 warning signs for Somi Conveyor Beltings that you need to be mindful of.

Although Somi Conveyor Beltings 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.

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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.