Does Damodar Industries (NSE:DAMODARIND) Deserve A Spot On Your Watchlist?

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. 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. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Damodar Industries (NSE:DAMODARIND). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Damodar Industries with the means to add long-term value to shareholders.

View our latest analysis for Damodar Industries

Damodar Industries' Improving Profits

Strong earnings per share (EPS) results are an indicator of a company achieving solid profits, which investors look upon favourably and so the share price tends to reflect great EPS performance. Which is why EPS growth is looked upon so favourably. It's an outstanding feat for Damodar Industries to have grown EPS from ₹2.27 to ₹7.90 in just one year. Even though that growth rate may not be repeated, that looks like a breakout improvement. Could this be a sign that the business has reached an inflection point?

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. While we note Damodar Industries achieved similar EBIT margins to last year, revenue grew by a solid 25% to ₹8.9b. That's progress.

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.

Damodar Industries isn't a huge company, given its market capitalisation of ₹1.3b. That makes it extra important to check on its balance sheet strength.

Are Damodar Industries 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 Damodar Industries insiders own a meaningful share of the business. Indeed, with a collective holding of 70%, company insiders are in control and have plenty of capital behind the venture. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. Of course, Damodar Industries is a very small company, with a market cap of only ₹1.3b. So this large proportion of shares owned by insiders only amounts to ₹914m. This isn't an overly large holding but it should still keep the insiders motivated to deliver the best outcomes for shareholders.

Is Damodar Industries Worth Keeping An Eye On?

Damodar Industries' earnings have taken off in quite an impressive fashion. This level of EPS growth does wonders for attracting investment, and the large insider investment in the company is just the cherry on top. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So based on this quick analysis, we do think it's worth considering Damodar Industries for a spot on your watchlist. However, before you get too excited we've discovered 5 warning signs for Damodar Industries (2 shouldn't be ignored!) that you should be aware of.

The beauty of investing is that you can invest in almost 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. 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.