Does Kapston Services (NSE:KAPSTON) Deserve A Spot On Your Watchlist?

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and 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. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

In contrast to all that, many investors prefer to focus on companies like Kapston Services (NSE:KAPSTON), which has not only revenues, but also profits. Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

Kapston Services' Improving Profits

In the last three years Kapston Services' earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. So it would be better to isolate the growth rate over the last year for our analysis. Kapston Services' EPS skyrocketed from ₹5.28 to ₹7.17, in just one year; a result that's bound to bring a smile to shareholders. That's a commendable gain of 36%.

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. EBIT margins for Kapston Services remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 33% to ₹6.5b. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

View our latest analysis for Kapston Services

Since Kapston Services is no giant, with a market capitalisation of ₹4.9b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Kapston Services 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 we're pleased to report that Kapston Services insiders own a meaningful share of the business. To be exact, company insiders hold 79% of the company, so their decisions have a significant impact on their investments. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. To give you an idea, the value of insiders' holdings in the business are valued at ₹3.9b at the current share price. That should be more than enough to keep them focussed on creating shareholder value!

Should You Add Kapston Services To Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Kapston Services' strong EPS growth. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in Kapston Services' continuing strength. Fast growth and confident insiders should be enough to warrant further research, so it would seem that it's a good stock to follow. You still need to take note of risks, for example - Kapston Services has 2 warning signs (and 1 which is significant) we think you should know about.

Although Kapston Services certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of Indian companies that not only boast of strong growth but have strong insider backing.

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.