Should You Be Adding Texmaco Rail & Engineering (NSE:TEXRAIL) To Your Watchlist Today?

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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

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 Texmaco Rail & Engineering (NSE:TEXRAIL). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Texmaco Rail & Engineering with the means to add long-term value to shareholders.

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Texmaco Rail & Engineering's Improving Profits

Over the last three years, Texmaco Rail & Engineering 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, Texmaco Rail & Engineering's EPS grew from ₹3.29 to ₹6.24, over the previous 12 months. It's a rarity to see 90% year-on-year growth like that. Shareholders will be hopeful that this is a sign of the company reaching an inflection point.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Texmaco Rail & Engineering maintained stable EBIT margins over the last year, all while growing revenue 46% to ₹51b. That's encouraging news for the company!

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.

See our latest analysis for Texmaco Rail & Engineering

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

Are Texmaco Rail & Engineering Insiders Aligned With All Shareholders?

It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. So it is good to see that Texmaco Rail & Engineering insiders have a significant amount of capital invested in the stock. Indeed, they hold ₹4.3b worth of its stock. This considerable investment should help drive long-term value in the business. Those holdings account for over 7.3% of the company; visible skin in the game.

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. A brief analysis of the CEO compensation suggests they are. Our analysis has discovered that the median total compensation for the CEOs of companies like Texmaco Rail & Engineering with market caps between ₹35b and ₹140b is about ₹34m.

Texmaco Rail & Engineering's CEO took home a total compensation package of ₹13m in the year prior to March 2024. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. 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 Texmaco Rail & Engineering To Your Watchlist?

Texmaco Rail & Engineering's earnings have taken off in quite an impressive fashion. An added bonus for those interested is that management hold a heap of stock and the CEO pay is quite reasonable, illustrating good cash management. The drastic earnings growth indicates the business is going from strength to strength. Hopefully a trend that continues well into the future. Texmaco Rail & Engineering is certainly doing some things right and is well worth investigating. You still need to take note of risks, for example - Texmaco Rail & Engineering has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

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 tailored list of Indian companies which have demonstrated growth backed by significant insider holdings.

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.