Here's Why STEL Holdings (NSE:STEL) Has Caught The Eye Of Investors

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

In contrast to all that, many investors prefer to focus on companies like STEL Holdings (NSE:STEL), which has not only revenues, but also profits. While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

See our latest analysis for STEL Holdings

How Fast Is STEL Holdings Growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Impressively, STEL Holdings has grown EPS by 18% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.

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. STEL Holdings maintained stable EBIT margins over the last year, all while growing revenue 64% to ₹201m. That's encouraging news for the company!

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

STEL Holdings isn't a huge company, given its market capitalisation of ₹2.0b. That makes it extra important to check on its balance sheet strength.

Are STEL Holdings Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, 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.

The good news for STEL Holdings is that one insider has illustrated their belief in the company's future with a huge purchase of shares in the last 12 months. In one fell swoop, company insider Harsh Goenka, spent ₹13m, at a price of ₹138 per share. Big insider buys like that are a rarity and should prompt discussion on the merits of the business.

It's commendable to see that insiders have been buying shares in STEL Holdings, but there is more evidence of shareholder friendly management. To be specific, the CEO is paid modestly when compared to company peers of the same size. Our analysis has discovered that the median total compensation for the CEOs of companies like STEL Holdings with market caps under ₹16b is about ₹3.0m.

The STEL Holdings CEO received total compensation of only ₹150k in the year to March 2021. This total may indicate that the CEO is sacrificing take home pay for performance-based benefits, ensuring that their motivations are synonymous with strong company results. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Does STEL Holdings Deserve A Spot On Your Watchlist?

You can't deny that STEL Holdings has grown its earnings per share at a very impressive rate. That's attractive. And that's not the only positive either. We have both insider buying and reasonable and remuneration to consider. On balance the message seems to be that this stock is worth looking at, at least for a while. You should always think about risks though. Case in point, we've spotted 2 warning signs for STEL Holdings you should be aware of.

The good news is that STEL Holdings is not the only growth stock with insider buying. Here's a list of them... 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. 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.