Should You Be Adding Mahalaxmi Rubtech (NSE:MHLXMIRU) To Your Watchlist Today?

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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 Mahalaxmi Rubtech (NSE:MHLXMIRU). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

See our latest analysis for Mahalaxmi Rubtech

How Fast Is Mahalaxmi Rubtech Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. It certainly is nice to see that Mahalaxmi Rubtech has managed to grow EPS by 29% per year over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.

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. Mahalaxmi Rubtech's EBIT margins have actually improved by 15.7 percentage points in the last year, to reach 20%, but, on the flip side, revenue was down 69%. That's not a good look.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

Since Mahalaxmi Rubtech is no giant, with a market capitalisation of ₹2.5b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Mahalaxmi Rubtech 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 Mahalaxmi Rubtech will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. To be exact, company insiders hold 77% of the company, so their decisions have a significant impact on their investments. Intuition will tell you 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 ₹1.9b riding on the stock, at current prices. So there's plenty there to keep them focused!

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. Our quick analysis into CEO remuneration would seem to indicate they are. For companies with market capitalisations under ₹17b, like Mahalaxmi Rubtech, the median CEO pay is around ₹3.6m.

The CEO of Mahalaxmi Rubtech was paid just ₹2.4m in total compensation for the year ending March 2024. This total may indicate that the CEO is sacrificing take home pay for performance-based benefits, ensuring that their motivations are synonymous with strong company results. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Should You Add Mahalaxmi Rubtech To Your Watchlist?

You can't deny that Mahalaxmi Rubtech has grown its earnings per share at a very impressive rate. That's attractive. If you still have your doubts, remember too that company insiders have a considerable investment aligning themselves with the shareholders and CEO pay is quite modest compared to similarly sized companiess. Everyone has their own preferences when it comes to investing but it definitely makes Mahalaxmi Rubtech look rather interesting indeed. Before you take the next step you should know about the 2 warning signs for Mahalaxmi Rubtech (1 doesn't sit too well with us!) that we have uncovered.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of Indian companies which have demonstrated growth backed by significant insider holdings.

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.