Do Motilal Oswal Financial Services's (NSE:MOTILALOFS) Earnings Warrant Your Attention?

By
Simply Wall St
Published
July 10, 2021
NSEI:MOTILALOFS
Source: Shutterstock

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. 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 Motilal Oswal Financial Services (NSE:MOTILALOFS). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for Motilal Oswal Financial Services

How Fast Is Motilal Oswal Financial Services 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). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Motilal Oswal Financial Services has managed to grow EPS by 25% per year over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Not all of Motilal Oswal Financial Services's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. While we note Motilal Oswal Financial Services's EBIT margins were flat over the last year, revenue grew by a solid 70% to ₹32b. That's progress.

In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.

earnings-and-revenue-history
NSEI:MOTILALOFS Earnings and Revenue History July 11th 2021

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Motilal Oswal Financial Services EPS 100% free.

Are Motilal Oswal Financial Services 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.

Although we did see some insider selling (worth -₹16m) this was overshadowed by a mountain of buying, totalling ₹189m in just one year. I find this encouraging because it suggests they are optimistic about the Motilal Oswal Financial Services's future. We also note that it was the Co-Founder, Motilal Oswal, who made the biggest single acquisition, paying ₹64m for shares at about ₹611 each.

On top of the insider buying, it's good to see that Motilal Oswal Financial Services insiders have a valuable investment in the business. Notably, they have an enormous stake in the company, worth ₹29b. Coming in at 20% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. So it might be my imagination, but I do sense the glimmer of an opportunity.

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. The cherry on top is that the CEO, Motilal Oswal is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between ₹75b and ₹239b, like Motilal Oswal Financial Services, the median CEO pay is around ₹31m.

The Motilal Oswal Financial Services CEO received ₹24m in compensation for the year ending . That comes in below the average for similar sized companies, and seems pretty reasonable to me. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. I'd also argue reasonable pay levels attest to good decision making more generally.

Does Motilal Oswal Financial Services Deserve A Spot On Your Watchlist?

You can't deny that Motilal Oswal Financial Services has grown its earnings per share at a very impressive rate. That's attractive. On top of that, insiders own a significant stake in the company and have been buying more shares. So it's fair to say I think this stock may well deserve a spot on your watchlist. Don't forget that there may still be risks. For instance, we've identified 4 warning signs for Motilal Oswal Financial Services (2 are potentially serious) you should be aware of.

As a growth investor I do like to see insider buying. But Motilal Oswal Financial Services 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. 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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