Here's Why We Think Continental Seeds and Chemicals (NSE:CONTI) Is Well Worth Watching

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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 Continental Seeds and Chemicals (NSE:CONTI), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Continental Seeds and Chemicals with the means to add long-term value to shareholders.

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Continental Seeds and Chemicals' Improving Profits

Over the last three years, Continental Seeds and Chemicals 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. Thus, it makes sense to focus on more recent growth rates, instead. Impressively, Continental Seeds and Chemicals' EPS catapulted from ₹0.67 to ₹1.44, over the last year. It's a rarity to see 116% year-on-year growth like that.

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. We note that while EBIT margins have improved from -1.9% to 1.2%, the company has actually reported a fall in revenue by 7.1%. That falls short of ideal.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

View our latest analysis for Continental Seeds and Chemicals

Continental Seeds and Chemicals isn't a huge company, given its market capitalisation of ₹368m. That makes it extra important to check on its balance sheet strength.

Are Continental Seeds and Chemicals Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So as you can imagine, the fact that Continental Seeds and Chemicals insiders own a significant number of shares certainly is appealing. Actually, with 50% of the company to their names, insiders are profoundly invested in the business. This should be a welcoming sign for investors because it suggests that the people making the decisions are also impacted by their choices. Of course, Continental Seeds and Chemicals is a very small company, with a market cap of only ₹368m. So despite a large proportional holding, insiders only have ₹183m worth of stock. This isn't an overly large holding but it should still keep the insiders motivated to deliver the best outcomes for shareholders.

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. Our quick analysis into CEO remuneration would seem to indicate they are. The median total compensation for CEOs of companies similar in size to Continental Seeds and Chemicals, with market caps under ₹17b is around ₹3.6m.

The CEO of Continental Seeds and Chemicals was paid just ₹1.5m in total compensation for the year ending March 2024. 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 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.

Should You Add Continental Seeds and Chemicals To Your Watchlist?

Continental Seeds and Chemicals' earnings per share growth have been climbing higher at an appreciable rate. An added bonus for those interested is that management hold a heap of stock and the CEO pay is quite reasonable, illustrating good cash management. The sharp increase in earnings could signal good business momentum. Big growth can make big winners, so the writing on the wall tells us that Continental Seeds and Chemicals is worth considering carefully. Don't forget that there may still be risks. For instance, we've identified 3 warning signs for Continental Seeds and Chemicals (2 are concerning) you should be aware of.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of Indian companies which have demonstrated growth backed by significant insider holdings.

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.