Here's Why I Think Banaras Beads (NSE:BANARBEADS) Might Deserve Your Attention Today

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. 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 contrast to all that, I prefer to spend time on companies like Banaras Beads (NSE:BANARBEADS), which has not only revenues, but also profits. 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. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

Check out our latest analysis for Banaras Beads

Banaras Beads's Earnings Per Share Are Growing.

As one of my mentors once told me, share price follows earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. As a tree reaches steadily for the sky, Banaras Beads's EPS has grown 21% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

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. Banaras Beads's EBIT margins have actually improved by 3.3 percentage points in the last year, to reach 13%, but, on the flip side, revenue was down 10%. That falls short of ideal.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

Banaras Beads isn't a huge company, given its market capitalization of ₹360m. That makes it extra important to check on its balance sheet strength.

Are Banaras Beads Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So as you can imagine, the fact that Banaras Beads insiders own a significant number of shares certainly appeals to me. In fact, they own 78% 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, Banaras Beads is a very small company, with a market cap of only ₹360m. That means insiders only have ₹282m worth of shares, despite the large proportional holding. That might not be a huge sum but it should be enough to keep insiders motivated!

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, I'd say they are indeed. For companies with market capitalizations under ₹15b, like Banaras Beads, the median CEO pay is around ₹3.1m.

The Banaras Beads 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 compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add Banaras Beads To Your Watchlist?

For growth investors like me, Banaras Beads's raw rate of earnings growth is a beacon in the night. If you need more convincing beyond that EPS growth rate, don't forget about the reasonable remuneration and the high insider ownership. This may only be a fast rundown, but the takeaway for me is that Banaras Beads is worth keeping an eye on. Don't forget that there may still be risks. For instance, we've identified 3 warning signs for Banaras Beads (2 are concerning) you should be aware of.

Although Banaras Beads certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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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