Should You Be Adding Avro India (NSE:AVROIND) To Your Watchlist Today?

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. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Avro India (NSE:AVROIND). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

View our latest analysis for Avro India

How Fast Is Avro India Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. As a tree reaches steadily for the sky, Avro India's EPS has grown 23% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

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. Avro India shareholders can take confidence from the fact that EBIT margins are up from 2.4% to 5.2%, and revenue is growing. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

Avro India isn't a huge company, given its market capitalization of ₹150m. That makes it extra important to check on its balance sheet strength.

Are Avro India Insiders Aligned With All Shareholders?

Personally, I like to see high insider ownership of a company, since it suggests that it will be managed in the interests of shareholders. So as you can imagine, the fact that Avro India insiders own a significant number of shares certainly appeals to me. In fact, they own 86% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes me think they will be incentivised to plan for the long term - something I like to see. Of course, Avro India is a very small company, with a market cap of only ₹150m. So despite a large proportional holding, insiders only have ₹128m worth of stock. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. A brief analysis of the CEO compensation suggests they are. I discovered that the median total compensation for the CEOs of companies like Avro India with market caps under ₹15b is about ₹3.0m.

The Avro India CEO received total compensation of only ₹1.5m in the year to . This could be considered a token amount, and indicates that the company does not need to use payment to motivate the CEO - that is often a good sign. 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. I'd also argue reasonable pay levels attest to good decision making more generally.

Does Avro India Deserve A Spot On Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Avro India's strong EPS growth. If you need more convincing beyond that EPS growth rate, don't forget about the reasonable remuneration and the high insider ownership. Each to their own, but I think all this makes Avro India look rather interesting indeed. We don't want to rain on the parade too much, but we did also find 2 warning signs for Avro India (1 is a bit concerning!) that you need to be mindful of.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with 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. 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.
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