Here's Why Paisalo Digital (NSE:PAISALO) Has Caught The Eye Of Investors

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. 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.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Paisalo Digital (NSE:PAISALO). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Paisalo Digital with the means to add long-term value to shareholders.

Check out our latest analysis for Paisalo Digital

Paisalo Digital's Earnings Per Share Are Growing

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That makes EPS growth an attractive quality for any company. Shareholders will be happy to know that Paisalo Digital's EPS has grown 32% each year, compound, over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. It's noted that Paisalo Digital's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. Paisalo Digital maintained stable EBIT margins over the last year, all while growing revenue 64% to ₹2.9b. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Paisalo Digital's balance sheet strength, before getting too excited.

Are Paisalo Digital 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. Paisalo Digital followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. Given insiders own a significant chunk of shares, currently valued at ₹7.8b, they have plenty of motivation to push the business to succeed. At 16% of the company, the co-investment by insiders fosters confidence that management will make long-term focussed decisions.

Does Paisalo Digital Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Paisalo Digital's strong EPS growth. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in Paisalo Digital's continuing strength. On the balance of its merits, solid EPS growth and company insiders who are aligned with the shareholders would indicate a business that is worthy of further research. You still need to take note of risks, for example - Paisalo Digital has 1 warning sign we think you should be aware of.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of Indian companies which have demonstrated growth backed by recent insider purchases.

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.