If You Like EPS Growth Then Check Out Cantabil Retail India (NSE:CANTABIL) Before It's Too Late

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 completely 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.'

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Cantabil Retail India (NSE:CANTABIL). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. 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.

See our latest analysis for Cantabil Retail India

How Fast Is Cantabil Retail India Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Impressively, Cantabil Retail India has grown EPS by 20% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). The good news is that Cantabil Retail India is growing revenues, and EBIT margins improved by 11.3 percentage points to 18%, over the last year. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

Cantabil Retail India isn't a huge company, given its market capitalization of ₹16b. That makes it extra important to check on its balance sheet strength.

Are Cantabil Retail India Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. 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.

In the last year insider at Cantabil Retail India were both selling and buying shares; but happily, as a group they spent ₹8.5m more on stock, than they netted from selling it. On balance, that's a good sign. It is also worth noting that it was Founder Vijay Bansal who made the biggest single purchase, worth ₹8.7m, paying ₹388 per share.

On top of the insider buying, we can also see that Cantabil Retail India insiders own a large chunk of the company. In fact, they own 85% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. With that sort of holding, insiders have about ₹14b riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. The cherry on top is that the CEO, Vijay Bansal is paid comparatively modestly to CEOs at similar sized companies. I discovered that the median total compensation for the CEOs of companies like Cantabil Retail India with market caps between ₹7.6b and ₹30b is about ₹14m.

The CEO of Cantabil Retail India only received ₹6.4m in total compensation for the year ending . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. 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.

Should You Add Cantabil Retail India To Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Cantabil Retail India's strong EPS growth. Not only that, but we can see that insiders both own a lot of, and are buying more, shares in the company. So it's fair to say I think this stock may well deserve a spot on your watchlist. Even so, be aware that Cantabil Retail India is showing 3 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

As a growth investor I do like to see insider buying. But Cantabil Retail India isn't the only one. You can see a 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.