Here's Why I Think Hindustan Foods (NSE:HNDFDS) Is An Interesting Stock

By
Simply Wall St
Published
September 01, 2021
NSEI:HNDFDS
Source: Shutterstock

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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.

So if you're like me, you might be more interested in profitable, growing companies, like Hindustan Foods (NSE:HNDFDS). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

Check out our latest analysis for Hindustan Foods

Hindustan Foods's Earnings Per Share Are Growing.

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. I, for one, am blown away by the fact that Hindustan Foods has grown EPS by 52% per year, over the last three years. While that sort of growth rate isn't sustainable for long, it certainly catches my attention; like a crow with a sparkly stone.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Hindustan Foods maintained stable EBIT margins over the last year, all while growing revenue 98% to ₹16b. That's progress.

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.

earnings-and-revenue-history
NSEI:HNDFDS Earnings and Revenue History September 2nd 2021

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 Hindustan Foods's balance sheet strength, before getting too excited.

Are Hindustan Foods 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 Hindustan Foods insiders have a significant amount of capital invested in the stock. Notably, they have an enormous stake in the company, worth ₹11b. Coming in at 26% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. Very encouraging.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. I discovered that the median total compensation for the CEOs of companies like Hindustan Foods with market caps between ₹15b and ₹58b is about ₹24m.

The CEO of Hindustan Foods only received ₹7.4m in total compensation for the year ending . That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.

Is Hindustan Foods Worth Keeping An Eye On?

Hindustan Foods's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The sharp increase in earnings could signal good business momentum. Hindustan Foods certainly ticks a few of my boxes, so I think it's probably well worth further consideration. You still need to take note of risks, for example - Hindustan Foods has 1 warning sign we think you should be aware of.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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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