If You Like EPS Growth Then Check Out Sarla Performance Fibers (NSE:SARLAPOLY) Before It's Too Late

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. 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 the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Sarla Performance Fibers (NSE:SARLAPOLY). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. 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 Sarla Performance Fibers

How Fast Is Sarla Performance Fibers Growing Its Earnings Per Share?

Over the last three years, Sarla Performance Fibers 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. Like the last firework on New Year's Eve accelerating into the sky, Sarla Performance Fibers's EPS shot from ₹2.28 to ₹6.10, over the last year. Year on year growth of 167% is certainly a sight to behold. The best case scenario? That the business has hit a true inflection point.

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). The good news is that Sarla Performance Fibers is growing revenues, and EBIT margins improved by 7.4 percentage points to 15%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

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

Sarla Performance Fibers isn't a huge company, given its market capitalization of ₹5.2b. That makes it extra important to check on its balance sheet strength.

Are Sarla Performance Fibers 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 Sarla Performance Fibers shareholders is that no insiders reported selling shares in the last year. So it's definitely nice that Madhusudan Jhunjhunwala bought ₹2.7m worth of shares at an average price of around ₹53.64.

Does Sarla Performance Fibers Deserve A Spot On Your Watchlist?

Sarla Performance Fibers's earnings per share have taken off like a rocket aimed right at the moon. Growth investors should find it difficult to look past that strong EPS move. And in fact, it could well signal a fundamental shift in the business economics. If that's the case, you may regret neglecting to put Sarla Performance Fibers on your watchlist. Before you take the next step you should know about the 1 warning sign for Sarla Performance Fibers that we have uncovered.

As a growth investor I do like to see insider buying. But Sarla Performance Fibers isn't the only one. You can see a a free list of them here.

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.