Is Now The Time To Put Steel City Securities (NSE:STEELCITY) On Your Watchlist?

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. 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 Steel City Securities (NSE:STEELCITY). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. 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.

See our latest analysis for Steel City Securities

How Fast Is Steel City Securities Growing Its Earnings Per Share?

Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So EPS growth can certainly encourage an investor to take note of a stock. Like a falcon taking flight, Steel City Securities's EPS soared from ₹5.99 to ₹8.07, over the last year. That's a commendable gain of 35%.

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 Steel City Securities's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Steel City Securities maintained stable EBIT margins over the last year, all while growing revenue 21% to ₹613m. That's a real positive.

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.

Steel City Securities isn't a huge company, given its market capitalization of ₹962m. That makes it extra important to check on its balance sheet strength.

Are Steel City Securities Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

One positive for Steel City Securities, is that company insiders paid ₹2.5m for shares in the last year. This might not be a huge sum, but it's well worth noting anyway, given the complete lack of selling. It is also worth noting that it was T. Rao who made the biggest single purchase, worth ₹2.1m, paying ₹36.19 per share.

On top of the insider buying, we can also see that Steel City Securities insiders own a large chunk of the company. In fact, they own 67% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. Valued at only ₹962m Steel City Securities is really small for a listed company. That means insiders only have ₹640m worth of shares, despite the large proportional holding. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

Should You Add Steel City Securities To Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Steel City Securities's strong EPS growth. Not only that, but we can see that insiders both own a lot of, and are buying more, shares in the company. So it's fair to say I think this stock may well deserve a spot on your watchlist. However, before you get too excited we've discovered 2 warning signs for Steel City Securities that you should be aware of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Steel City Securities, you'll probably love this free list of growing companies that insiders are buying.

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.