Do Dolat Algotech's (NSE:DOLATALGO) Earnings Warrant Your Attention?

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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

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 Dolat Algotech (NSE:DOLATALGO). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Dolat Algotech with the means to add long-term value to shareholders.

Check out our latest analysis for Dolat Algotech

How Quickly Is Dolat Algotech Increasing Earnings Per Share?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Over the last three years, Dolat Algotech has grown EPS by 11% per year. That's a pretty good rate, if the company can sustain it.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Our analysis has highlighted that Dolat Algotech's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. Dolat Algotech maintained stable EBIT margins over the last year, all while growing revenue 127% to ₹5.2b. That's progress.

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.

Since Dolat Algotech is no giant, with a market capitalisation of ₹20b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Dolat Algotech Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Dolat Algotech insiders have a significant amount of capital invested in the stock. To be specific, they have ₹2.0b worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. As a percentage, this totals to 10% of the shares on issue for the business, an appreciable amount considering the market cap.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, you'd argue that they are indeed. For companies with market capitalisations between ₹8.6b and ₹34b, like Dolat Algotech, the median CEO pay is around ₹16m.

Dolat Algotech's CEO took home a total compensation package of ₹6.0m in the year prior to March 2024. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. 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. It can also be a sign of good governance, more generally.

Is Dolat Algotech Worth Keeping An Eye On?

As previously touched on, Dolat Algotech is a growing business, which is encouraging. Earnings growth might be the main attraction for Dolat Algotech, but the fun does not stop there. With company insiders aligning themselves considerably with the company's success and modest CEO compensation, there's no arguments that this is a stock worth looking into. It's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Dolat Algotech (at least 1 which is a bit unpleasant) , and understanding them should be part of your investment process.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in IN with promising growth potential and insider confidence.

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.