Here's Why We Think Lambodhara Textiles (NSE:LAMBODHARA) Is Well Worth Watching

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 currently 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.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Lambodhara Textiles (NSE:LAMBODHARA). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

See our latest analysis for Lambodhara Textiles

How Quickly Is Lambodhara Textiles Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That makes EPS growth an attractive quality for any company. It certainly is nice to see that Lambodhara Textiles has managed to grow EPS by 24% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

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. On the revenue front, Lambodhara Textiles has done well over the past year, growing revenue by 49% to ₹1.8b but EBIT margin figures were less stellar, seeing a decline over the last 12 months. If EBIT margins are able to stay balanced and this revenue growth continues, then we should see brighter days ahead.

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.

Lambodhara Textiles isn't a huge company, given its market capitalisation of ₹753m. That makes it extra important to check on its balance sheet strength.

Are Lambodhara Textiles 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 those who are interested in Lambodhara Textiles will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. Owning 37% of the company, insiders have plenty riding on the performance of the the share price. Those who are comforted by solid insider ownership like this should be happy, as it implies that those running the business are genuinely motivated to create shareholder value. Valued at only ₹753m Lambodhara Textiles is really small for a listed company. So this large proportion of shares owned by insiders only amounts to ₹279m. That might not be a huge sum but it should be enough to keep insiders motivated!

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. Well, based on the CEO pay, you'd argue that they are indeed. Our analysis has discovered that the median total compensation for the CEOs of companies like Lambodhara Textiles with market caps under ₹16b is about ₹3.0m.

The CEO of Lambodhara Textiles was paid just ₹1.1m in total compensation for the year ending March 2021. 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 it's reasonable, that gives 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 Lambodhara Textiles To Your Watchlist?

For growth investors, Lambodhara Textiles' 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. Everyone has their own preferences when it comes to investing but it definitely makes Lambodhara Textiles look rather interesting indeed. You should always think about risks though. Case in point, we've spotted 3 warning signs for Lambodhara Textiles you should be aware of, and 1 of them can't be ignored.

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.