Does Pashupati Cotspin (NSE:PASHUPATI) Deserve A Spot On Your Watchlist?

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Pashupati Cotspin (NSE:PASHUPATI). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

See our latest analysis for Pashupati Cotspin

Pashupati Cotspin's Earnings Per Share Are Growing.

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. Pashupati Cotspin managed to grow EPS by 12% per year, over three years. That's a pretty good rate, if the company can sustain it.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Pashupati Cotspin maintained stable EBIT margins over the last year, all while growing revenue 56% to ₹5.4b. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

Pashupati Cotspin isn't a huge company, given its market capitalization of ₹1.9b. That makes it extra important to check on its balance sheet strength.

Are Pashupati Cotspin Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The good news for Pashupati Cotspin shareholders is that no insiders reported selling shares in the last year. So it's definitely nice that Chairman & MD Saurinbhai Parikh bought ₹2.1m worth of shares at an average price of around ₹83.52.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Pashupati Cotspin insiders own more than a third of the company. Indeed, with a collective holding of 76%, company insiders are in control and have plenty of capital behind the venture. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. In terms of absolute value, insiders have ₹1.4b invested in the business, using the current share price. That should be more than enough to keep them focussed on creating shareholder value!

Should You Add Pashupati Cotspin To Your Watchlist?

One important encouraging feature of Pashupati Cotspin is that it is growing profits. On top of that, we've seen insiders buying shares even though they already own plenty. That makes the company a prime candidate for my watchlist - and arguably a research priority. It is worth noting though that we have found 5 warning signs for Pashupati Cotspin (2 are potentially serious!) that you need to take into consideration.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Pashupati Cotspin, you'll probably love this free list of growing companies that insiders are buying.

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.