Do Avro India's (NSE:AVROIND) Earnings Warrant Your Attention?

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone 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. 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 Avro India (NSE:AVROIND). 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 Avro India

Avro India's Improving Profits

Investors and investment funds chase profits, and that means share prices tend rise with positive earnings per share (EPS) outcomes. So for many budding investors, improving EPS is considered a good sign. Commendations have to be given in seeing that Avro India grew its EPS from ₹1.31 to ₹5.29, in one short year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future. This could point to the business hitting a point of inflection.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. The music to the ears of Avro India shareholders is that EBIT margins have grown from 4.0% to 9.6% in the last 12 months and revenues are on an upwards trend as well. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

Since Avro India is no giant, with a market capitalisation of ₹1.4b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Avro India 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 as you can imagine, the fact that Avro India insiders own a significant number of shares certainly is appealing. To be exact, company insiders hold 82% 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. Of course, Avro India is a very small company, with a market cap of only ₹1.4b. That means insiders only have ₹1.1b worth of shares, despite the large proportional holding. That might not be a huge sum but it should be enough to keep insiders motivated!

Does Avro India Deserve A Spot On Your Watchlist?

Avro India's earnings per share have been soaring, with growth rates sky high. This level of EPS growth does wonders for attracting investment, and the large insider investment in the company is just the cherry on top. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. Based on the sum of its parts, we definitely think its worth watching Avro India very closely. Still, you should learn about the 2 warning signs we've spotted with Avro India (including 1 which can't be ignored).

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 free list of them here.

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.