Here's Why I Think Spectrum Electrical Industries (NSE:SPECTRUM) Might Deserve Your Attention Today

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

In contrast to all that, I prefer to spend time on companies like Spectrum Electrical Industries (NSE:SPECTRUM), which has not only revenues, but also profits. Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

Check out our latest analysis for Spectrum Electrical Industries

How Quickly Is Spectrum Electrical Industries Increasing Earnings Per Share?

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. Spectrum Electrical Industries managed to grow EPS by 11% per year, over three years. That's a good rate of growth, if it can be sustained.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). The good news is that Spectrum Electrical Industries is growing revenues, and EBIT margins improved by 5.1 percentage points to 9.2%, over the last year. That's great to see, on both counts.

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.

Spectrum Electrical Industries isn't a huge company, given its market capitalization of ₹1.6b. That makes it extra important to check on its balance sheet strength.

Are Spectrum Electrical Industries Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

It's good to see Spectrum Electrical Industries insiders walking the walk, by spending ₹28m on shares in just twelve months. And when you consider that there was no insider selling, you can understand why shareholders might believe that lady luck will grace this business. It is also worth noting that it was MD & Director Deepak Chaudhari who made the biggest single purchase, worth ₹10.0m, paying ₹53.10 per share.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Spectrum Electrical Industries insiders own more than a third of the company. In fact, they own 65% 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. Valued at only ₹1.6b Spectrum Electrical Industries is really small for a listed company. That means insiders only have ₹1.0b worth of shares, despite the large proportional holding. That might not be a huge sum but it should be enough to keep insiders motivated!

Does Spectrum Electrical Industries Deserve A Spot On Your Watchlist?

One important encouraging feature of Spectrum Electrical Industries is that it is growing profits. Better yet, insiders are significant shareholders, and have been buying more shares. That makes the company a prime candidate for my watchlist - and arguably a research priority. Even so, be aware that Spectrum Electrical Industries is showing 4 warning signs in our investment analysis , and 2 of those are potentially serious...

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Spectrum Electrical Industries, you'll probably love this free list of growing companies that insiders are buying.

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.