Do Bombay Super Hybrid Seeds' (NSE:BSHSL) Earnings Warrant Your Attention?

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Bombay Super Hybrid Seeds (NSE:BSHSL). 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.

Our analysis indicates that BSHSL is potentially overvalued!

Bombay Super Hybrid Seeds' Improving Profits

Over the last three years, Bombay Super Hybrid Seeds has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. So it would be better to isolate the growth rate over the last year for our analysis. Bombay Super Hybrid Seeds' EPS shot up from ₹0.93 to ₹1.17; a result that's bound to keep shareholders happy. That's a impressive gain of 25%.

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. EBIT margins for Bombay Super Hybrid Seeds remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 19% to ₹2.2b. That's progress.

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.

Since Bombay Super Hybrid Seeds is no giant, with a market capitalisation of ₹16b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Bombay Super Hybrid Seeds Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. 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.

Shareholders in Bombay Super Hybrid Seeds will be more than happy to see insiders committing themselves to the company, spending ₹17m on shares in just twelve months. And when you consider that there was no insider selling, you can understand why shareholders might believe that there are brighter days ahead. It is also worth noting that it was Chairman & MD Arvindkumar Kakadia who made the biggest single purchase, worth ₹2.9m, paying ₹140 per share.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Bombay Super Hybrid Seeds insiders own more than a third of the company. Indeed, with a collective holding of 87%, company insiders are in control and have plenty of capital behind the venture. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. In terms of absolute value, insiders have ₹14b invested in the business, at the current share price. So there's plenty there to keep them focused!

Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. The cherry on top is that the CEO, Arvindkumar Kakadia is paid comparatively modestly to CEOs at similar sized companies. Our analysis has discovered that the median total compensation for the CEOs of companies like Bombay Super Hybrid Seeds with market caps between ₹8.2b and ₹33b is about ₹18m.

The Bombay Super Hybrid Seeds CEO received total compensation of only ₹1.2m in the year to March 2022. This could be considered a token amount, and indicates that the company does not need to use payment to motivate the CEO - that is often a good sign. 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 a culture of integrity, in a broader sense.

Should You Add Bombay Super Hybrid Seeds To Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Bombay Super Hybrid Seeds' strong EPS growth. On top of that, insiders own a significant stake in the company and have been buying more shares. These things considered, this is one stock worth watching. We don't want to rain on the parade too much, but we did also find 1 warning sign for Bombay Super Hybrid Seeds that you need to be mindful of.

The good news is that Bombay Super Hybrid Seeds 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.