Here's Why I Think Dalmia Bharat Sugar and Industries (NSE:DALMIASUG) Is An Interesting Stock

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. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Dalmia Bharat Sugar and Industries (NSE:DALMIASUG). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

See our latest analysis for Dalmia Bharat Sugar and Industries

How Quickly Is Dalmia Bharat Sugar and Industries Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. As a tree reaches steadily for the sky, Dalmia Bharat Sugar and Industries's EPS has grown 30% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). I note that, last year, Dalmia Bharat Sugar and Industries's revenue from operations was lower than its revenue, so that could distort my analysis of its margins. The good news is that Dalmia Bharat Sugar and Industries is growing revenues, and EBIT margins improved by 2.2 percentage points to 16%, over the last year. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Dalmia Bharat Sugar and Industries's balance sheet strength, before getting too excited.

Are Dalmia Bharat Sugar and Industries Insiders Aligned With All Shareholders?

It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. So it is good to see that Dalmia Bharat Sugar and Industries insiders have a significant amount of capital invested in the stock. To be specific, they have ₹2.6b worth of shares. That's a lot of money, and no small incentive to work hard. Those holdings account for over 8.1% of the company; visible skin in the game.

Should You Add Dalmia Bharat Sugar and Industries To Your Watchlist?

For growth investors like me, Dalmia Bharat Sugar and Industries's raw rate of earnings growth is a beacon in the night. I think that EPS growth is something to boast of, and it doesn't surprise me that insiders are holding on to a considerable chunk of shares. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. However, before you get too excited we've discovered 3 warning signs for Dalmia Bharat Sugar and Industries that you should be aware of.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

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. 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.
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