If You Like EPS Growth Then Check Out Manappuram Finance (NSE:MANAPPURAM) Before It's Too Late

By
Simply Wall St
Published
May 26, 2021
NSEI:MANAPPURAM
Source: Shutterstock

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 as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Manappuram Finance (NSE:MANAPPURAM). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. 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.

Check out our latest analysis for Manappuram Finance

How Fast Is Manappuram Finance Growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. It's no surprise, then, that I like to invest in companies with EPS growth. Impressively, Manappuram Finance has grown EPS by 33% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

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). I note that Manappuram Finance's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. While we note Manappuram Finance's EBIT margins were flat over the last year, revenue grew by a solid 20% to ₹41b. That's a real positive.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

earnings-and-revenue-history
NSEI:MANAPPURAM Earnings and Revenue History May 27th 2021

Fortunately, we've got access to analyst forecasts of Manappuram Finance's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Manappuram Finance 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 we're pleased to report that Manappuram Finance insiders own a meaningful share of the business. Actually, with 37% of the company to their names, insiders are profoundly invested in the business. I'm always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. And their holding is extremely valuable at the current share price, totalling ₹50b. Now that's what I call some serious skin in the game!

Should You Add Manappuram Finance To Your Watchlist?

For growth investors like me, Manappuram Finance's raw rate of earnings growth is a beacon in the night. I think that EPS growth is something to boast of, and it doesn't surprise me that insiders are holding on to a considerable chunk of shares. Fast growth and confident insiders should be enough to warrant further research. So the answer is that I do think this is a good stock to follow along with. You should always think about risks though. Case in point, we've spotted 2 warning signs for Manappuram Finance you should be aware of, and 1 of them is concerning.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

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. 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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Simply Wall St is focused on providing unbiased, high-quality research coverage on every listed company in the world. Our research team consists of data scientists and multiple equity analysts with over two decades worth of financial markets experience between them.