Does Globus Spirits (NSE:GLOBUSSPR) Deserve A Spot On Your Watchlist?

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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Globus Spirits (NSE:GLOBUSSPR). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for Globus Spirits

Globus Spirits's Improving Profits

Over the last three years, Globus Spirits has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. Thus, it makes sense to focus on more recent growth rates, instead. Like the last firework on New Year's Eve accelerating into the sky, Globus Spirits's EPS shot from ₹21.52 to ₹61.73, over the last year. You don't see 187% year-on-year growth like that, very often.

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. The good news is that Globus Spirits is growing revenues, and EBIT margins improved by 10.9 percentage points to 20%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Globus Spirits Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Any way you look at it Globus Spirits shareholders can gain quiet confidence from the fact that insiders shelled out ₹16m to buy stock, over the last year. When you contrast that with the complete lack of sales, it's easy for shareholders to brim with joyful expectancy. Zooming in, we can see that the biggest insider purchase was by Joint MD & Executive Director Shekhar Swarup for ₹10.0m worth of shares, at about ₹558 per share.

The good news, alongside the insider buying, for Globus Spirits bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold ₹3.2b worth of its stock. That's a lot of money, and no small incentive to work hard. That amounts to 14% of the company, demonstrating a degree of high-level alignment with shareholders.

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. The cherry on top is that the CEO, Ajay Swarup is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between ₹15b and ₹60b, like Globus Spirits, the median CEO pay is around ₹23m.

The Globus Spirits CEO received ₹17m in compensation for the year ending . That comes in below the average for similar sized companies, and seems pretty reasonable to me. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.

Should You Add Globus Spirits To Your Watchlist?

Globus Spirits's earnings per share have taken off like a rocket aimed right at the moon. Just as heartening; insiders both own and are buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Globus Spirits deserves timely attention. You should always think about risks though. Case in point, we've spotted 1 warning sign for Globus Spirits you should be aware of.

The good news is that Globus Spirits 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. 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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