Here's Why We Think Kanani Industries (NSE:KANANIIND) Is Well Worth Watching

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 as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

So if you're like me, you might be more interested in profitable, growing companies, like Kanani Industries (NSE:KANANIIND). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for Kanani Industries

How Fast Is Kanani Industries Growing Its Earnings Per Share?

Over the last three years, Kanani Industries has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. As a result, I'll zoom in on growth over the last year, instead. It's good to see that Kanani Industries's EPS have grown from ₹0.22 to ₹0.26 over twelve months. I doubt many would complain about that 19% gain.

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. Kanani Industries maintained stable EBIT margins over the last year, all while growing revenue 9.4% to ₹3.8b. That's a real positive.

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

Since Kanani Industries is no giant, with a market capitalization of ₹367m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Kanani Industries 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 Kanani Industries insiders own a significant number of shares certainly appeals to me. In fact, they own 88% 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. Valued at only ₹367m Kanani Industries is really small for a listed company. So despite a large proportional holding, insiders only have ₹322m worth of stock. That might not be a huge sum but it should be enough to keep insiders motivated!

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I'd say they are indeed. For companies with market capitalizations under ₹15b, like Kanani Industries, the median CEO pay is around ₹3.6m.

The CEO of Kanani Industries was paid just ₹501k in total compensation for the year ending . 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. It can also be a sign of good governance, more generally.

Does Kanani Industries Deserve A Spot On Your Watchlist?

As I already mentioned, Kanani Industries is a growing business, which is what I like to see. The fact that EPS is growing is a genuine positive for Kanani Industries, but the pretty picture gets better than that. Boasting both modest CEO pay and considerable insider ownership, I'd argue this one is worthy of the watchlist, at least. You still need to take note of risks, for example - Kanani Industries has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

Although Kanani Industries 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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