Here's Why We Think Avro India (NSE:AVROIND) Is Well Worth Watching

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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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). 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.

View 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. It's an outstanding feat for Avro India to have grown EPS from ₹1.53 to ₹4.61 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company. This could point to the business hitting a point of inflection.

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. The music to the ears of Avro India shareholders is that EBIT margins have grown from 3.7% to 8.7% in the last 12 months and revenues are on an upwards trend as well. Ticking those two boxes is a good sign of growth, in our book.

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.

Since Avro India is no giant, with a market capitalisation of ₹1.2b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Avro India Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The good news for Avro India shareholders is that no insiders reported selling shares in the last year. Add in the fact that Anita Aggarwal, the Non-Executive Director of the company, paid ₹4.0m for shares at around ₹53.20 each. Decent buying like this could be a sign for shareholders here; management sees the company as undervalued.

On top of the insider buying, we can also see that Avro India insiders own a large chunk of the company. In fact, they own 82% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. Valued at only ₹1.2b Avro India is really small for a listed company. So this large proportion of shares owned by insiders only amounts to ₹1.0b. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

Does Avro India Deserve A Spot On Your Watchlist?

Avro India's earnings per share growth have been climbing higher at an appreciable rate. To sweeten the deal, insiders have significant skin in the game with one even acquiring more. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Avro India deserves timely attention. We should say that we've discovered 3 warning signs for Avro India (2 are a bit unpleasant!) that you should be aware of before investing here.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Avro India, 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.

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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.