Do Shriram City Union Finance's (NSE:SHRIRAMCIT) Earnings Warrant Your Attention?

By
Simply Wall St
Published
September 21, 2021
NSEI:SHRIRAMCIT
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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In contrast to all that, I prefer to spend time on companies like Shriram City Union Finance (NSE:SHRIRAMCIT), which has not only revenues, but also profits. 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. 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 Shriram City Union Finance

How Quickly Is Shriram City Union Finance Increasing Earnings Per Share?

As one of my mentors once told me, share price follows earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Shriram City Union Finance managed to grow EPS by 10% per year, over three years. That's a pretty good rate, if the company can sustain it.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. I note that Shriram City Union Finance's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Shriram City Union Finance reported flat revenue and EBIT margins over the last year. That's not bad, but it doesn't point to ongoing future growth, either.

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:SHRIRAMCIT Earnings and Revenue History September 22nd 2021

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Shriram City Union Finance Insiders Aligned With All Shareholders?

I always like to check up on CEO compensation, because I think that reasonable pay levels, around or below the median, can be a sign that shareholder interests are well considered. I discovered that the median total compensation for the CEOs of companies like Shriram City Union Finance with market caps between ₹74b and ₹236b is about ₹31m.

The Shriram City Union Finance CEO received total compensation of just ₹13m in the year to . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of good governance, more generally.

Is Shriram City Union Finance Worth Keeping An Eye On?

One positive for Shriram City Union Finance is that it is growing EPS. That's nice to see. Not only that, but the CEO is paid quite reasonably, which makes me feel more trusting of the board of directors. So I do think the stock deserves further research, if not instant addition to your watchlist. We should say that we've discovered 3 warning signs for Shriram City Union Finance (1 is a bit unpleasant!) that you should be aware of before investing here.

Although Shriram City Union Finance certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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.
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