Do Race Eco Chain's (NSE:RACE) Earnings Warrant Your Attention?

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. 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 can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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 Race Eco Chain (NSE:RACE). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

Check out our latest analysis for Race Eco Chain

Race Eco Chain's Improving Profits

Race Eco Chain has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. Thus, it makes sense to focus on more recent growth rates, instead. In impressive fashion, Race Eco Chain's EPS grew from ₹0.62 to ₹1.33, over the previous 12 months. It's a rarity to see 115% year-on-year growth like that. That could be a sign that the business has reached a true 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. While we note Race Eco Chain achieved similar EBIT margins to last year, revenue grew by a solid 59% to ₹3.5b. That's progress.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

Race Eco Chain isn't a huge company, given its market capitalisation of ₹5.8b. That makes it extra important to check on its balance sheet strength.

Are Race Eco Chain Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Any way you look at it Race Eco Chain shareholders can gain quiet confidence from the fact that insiders shelled out ₹50m to buy stock, over the last year. And when you consider that there was no insider selling, you can understand why shareholders might believe that there are brighter days ahead. We also note that it was the Non-Executive Director, Lalit Malik, who made the biggest single acquisition, paying ₹16m for shares at about ₹283 each.

These recent buys aren't the only encouraging sign for shareholders, as a look at the shareholder registry for Race Eco Chain will reveal that insiders own a significant piece of the pie. In fact, they own 47% of the shares, making insiders a very influential shareholder group. Those who are comforted by solid insider ownership like this should be happy, as it implies that those running the business are genuinely motivated to create shareholder value. With that sort of holding, insiders have about ₹2.7b riding on the stock, at current prices. So there's plenty there to keep them focused!

Should You Add Race Eco Chain To Your Watchlist?

Race Eco Chain's earnings per share have been soaring, with growth rates sky high. What's more, insiders own a significant stake in the company and have been buying more shares. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Race Eco Chain belongs near the top of your watchlist. You still need to take note of risks, for example - Race Eco Chain has 2 warning signs (and 1 which can't be ignored) we think you should know about.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Race Eco Chain, you'll probably love this curated collection of companies in IN that have an attractive valuation alongside insider buying in the last three months.

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.