Here's Why We Think STEL Holdings (NSE:STEL) Might Deserve Your Attention Today

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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. Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

View our latest analysis for STEL Holdings

How Quickly Is STEL Holdings Increasing Earnings Per Share?

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. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. We can see that in the last three years STEL Holdings grew its EPS by 7.4% per year. While that sort of growth rate isn't anything to write home about, it does show the business is growing.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Our analysis has highlighted that STEL Holdings' revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. While we note STEL Holdings achieved similar EBIT margins to last year, revenue grew by a solid 9.2% to ₹182m. That's encouraging news for the company!

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

STEL Holdings isn't a huge company, given its market capitalisation of ₹4.6b. 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The first bit of good news is that no STEL Holdings insiders reported share sales in the last twelve months. Even better, though, is that the company insider, Harshvardhan Goenka, bought a whopping ₹50m worth of shares, paying about ₹175 per share, on average. It seems at least one insider thinks that the company is doing well - and they are backing that view with cash.

Recent insider purchases of STEL Holdings stock is not the only way management has kept the interests of the general public shareholders in mind. Specifically, the CEO is paid quite reasonably for a company of this size. The median total compensation for CEOs of companies similar in size to STEL Holdings, with market caps under ₹17b is around ₹3.3m.

The CEO of STEL Holdings was paid just ₹240k in total compensation for the year ending March 2023. You could consider this pay as somewhat symbolic, which suggests the CEO does not need a lot of compensation to stay motivated. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.

Does STEL Holdings Deserve A Spot On Your Watchlist?

One important encouraging feature of STEL Holdings is that it is growing profits. And that's not all. We've also seen insiders buying stock, and noted modest executive pay. If these factors aren't enough to secure STEL Holdings a spot on the watchlist, then it certainly warrants a closer look at the very least. It's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with STEL Holdings , and understanding them should be part of your investment process.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of STEL Holdings, 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.