Should You Be Adding Axita Cotton (NSE:AXITA) To Your Watchlist Today?

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. 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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like Axita Cotton (NSE:AXITA), which has not only revenues, but also profits. 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.

Check out our latest analysis for Axita Cotton

Axita Cotton's Improving Profits

Over the last three years, Axita Cotton has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. Thus, it makes sense to focus on more recent growth rates, instead. Axita Cotton boosted its trailing twelve month EPS from ₹0.65 to ₹0.78, in the last year. There's little doubt shareholders would be happy with that 20% gain.

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. Axita Cotton maintained stable EBIT margins over the last year, all while growing revenue 99% to ₹11b. That's progress.

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 Axita Cotton is no giant, with a market capitalisation of ₹6.2b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Axita Cotton Insiders Aligned With All Shareholders?

Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price. So we're pleased to report that Axita Cotton insiders own a meaningful share of the business. To be exact, company insiders hold 64% of the company, so their decisions have a significant impact on their investments. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. To give you an idea, the value of insiders' holdings in the business are valued at ₹4.0b at the current share price. So there's plenty there to keep them focused!

Should You Add Axita Cotton To Your Watchlist?

One positive for Axita Cotton is that it is growing EPS. That's nice to see. To add an extra spark to the fire, significant insider ownership in the company is another highlight. The combination definitely favoured by investors so consider keeping the company on a watchlist. It is worth noting though that we have found 4 warning signs for Axita Cotton (1 is a bit unpleasant!) that you need to take into consideration.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in IN with promising growth potential and insider confidence.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com