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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.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like TeamLease Services (NSE:TEAMLEASE). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
TeamLease Services’s Earnings Per Share Are Growing.
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. I, for one, am blown away by the fact that TeamLease Services has grown EPS by 53% per year, over the last three years. Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.
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. While we note TeamLease Services’s EBIT margins were flat over the last year, revenue grew by a solid 23% to ₹44b. That’s a real positive.
You don’t drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for TeamLease Services’s future profits.
Are TeamLease Services Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That’s because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Over the last 12 months TeamLease Services insiders spent ₹4.2m more buying shares than they received from selling them. On balance, that’s a good sign. It is also worth noting that it was Non-Executive Independent Director Narayan Ramachandran who made the biggest single purchase, worth ₹6.4m, paying ₹2,550 per share.
I do like that insiders have been buying shares in TeamLease Services, but there is more evidence of shareholder friendly management. Specifically, the CEO is paid quite reasonably for a company of this size. I discovered that the median total compensation for the CEOs of companies like TeamLease Services with market caps between ₹28b and ₹111b is about ₹24m.
The TeamLease Services CEO received total compensation of just ₹9.9m in the year to March 2018. 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. It can also be a sign of good governance, more generally.
Does TeamLease Services Deserve A Spot On Your Watchlist?
TeamLease Services’s earnings per share have taken off like a rocket aimed right at the moon. The company can also boast of insider buying, and reasonable remuneration for the CEO. The strong EPS growth suggests TeamLease Services may be at an inflection point. If so, then it the potential for further gains probably merit a spot on your watchlist. Of course, profit growth is one thing but it’s even better if TeamLease Services is receiving high returns on equity, since that should imply it can keep growing without much need for capital. Click on this link to see how it is faring against the average in its industry.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of TeamLease Services, 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
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.