Should You Be Adding Pashupati Cotspin (NSE:PASHUPATI) To Your Watchlist Today?

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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

In contrast to all that, I prefer to spend time on companies like Pashupati Cotspin (NSE:PASHUPATI), which has not only revenues, but also profits. 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 Pashupati Cotspin

How Fast Is Pashupati Cotspin Growing?

As one of my mentors once told me, share price follows earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. We can see that in the last three years Pashupati Cotspin grew its EPS by 11% per year. That's a pretty good rate, if the company can sustain it.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Pashupati Cotspin maintained stable EBIT margins over the last year, all while growing revenue 11% to ₹4.4b. That's progress.

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 Pashupati Cotspin is no giant, with a market capitalization of ₹1.4b, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Pashupati Cotspin Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

The good news for Pashupati Cotspin shareholders is that no insiders reported selling shares in the last year. With that in mind, it's heartening that Saurinbhai Parikh, the Chairman & MD of the company, paid ₹2.1m for shares at around ₹83.52 each.

On top of the insider buying, we can also see that Pashupati Cotspin insiders own a large chunk of the company. In fact, they own 77% 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 ₹1.4b Pashupati Cotspin is really small for a listed company. That means insiders only have ₹1.1b worth of shares, despite the large proportional holding. That might not be a huge sum but it should be enough to keep insiders motivated!

Does Pashupati Cotspin Deserve A Spot On 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. We don't want to rain on the parade too much, but we did also find 4 warning signs for Pashupati Cotspin (2 make us uncomfortable!) that you need to be mindful of.

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.

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.

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