Here's Why I Think Indian Railway Catering & Tourism (NSE:IRCTC) Might Deserve Your Attention Today

By
Simply Wall St
Published
March 21, 2022
NSEI:IRCTC
Source: Shutterstock

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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.

So if you're like me, you might be more interested in profitable, growing companies, like Indian Railway Catering & Tourism (NSE:IRCTC). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

View our latest analysis for Indian Railway Catering & Tourism

How Fast Is Indian Railway Catering & Tourism Growing?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. Impressively, Indian Railway Catering & Tourism has grown EPS by 25% per year, compound, in the last three years. So it's not surprising to see the company trades on a very high multiple of (past) earnings.

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. The good news is that Indian Railway Catering & Tourism is growing revenues, and EBIT margins improved by 24.7 percentage points to 46%, over the last year. That's great to see, on both counts.

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.

earnings-and-revenue-history
NSEI:IRCTC Earnings and Revenue History March 21st 2022

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Indian Railway Catering & Tourism's balance sheet strength, before getting too excited.

Are Indian Railway Catering & Tourism Insiders Aligned With All Shareholders?

I always like to check up on CEO compensation, because I think that reasonable pay levels, around or below the median, can be a sign that shareholder interests are well considered. For companies with market capitalizations between ₹304b and ₹912b, like Indian Railway Catering & Tourism, the median CEO pay is around ₹57m.

The Indian Railway Catering & Tourism CEO received total compensation of just ₹7.3m in the year to . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.

Does Indian Railway Catering & Tourism Deserve A Spot On Your Watchlist?

You can't deny that Indian Railway Catering & Tourism has grown its earnings per share at a very impressive rate. That's attractive. The fast growth bodes well while the very reasonable CEO pay assists builds some confidence in the board. So I'd argue this is the kind of stock worth watching, even if it isn't great value today. One of Buffett's considerations when discussing businesses is if they are capital light or capital intensive. Generally, a company with a high return on equity is capital light, and can thus fund growth more easily. So you might want to check this graph comparing Indian Railway Catering & Tourism's ROE with industry peers (and the market at large).

Although Indian Railway Catering & Tourism certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, 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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