Here's Why We Think Hindustan Foods (NSE:HNDFDS) Is Well Worth Watching

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Hindustan Foods (NSE:HNDFDS). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Hindustan Foods with the means to add long-term value to shareholders.

View our latest analysis for Hindustan Foods

Hindustan Foods' Earnings Per Share Are Growing

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Hindustan Foods has managed to grow EPS by 30% per year over three years. This has no doubt fuelled the optimism that sees the stock trading on a high multiple of earnings.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. While we note Hindustan Foods achieved similar EBIT margins to last year, revenue grew by a solid 15% to ₹30b. That's progress.

In the chart below, you can see how the company has grown earnings and revenue, 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 Hindustan Foods' balance sheet strength, before getting too excited.

Are Hindustan Foods Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. 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.

Although we did see some insider selling (worth ₹595m) this was overshadowed by a mountain of buying, totalling ₹1.1b in just one year. We find this encouraging because it suggests they are optimistic about Hindustan Foods'future. It is also worth noting that it was company insider Harsha Raghavan who made the biggest single purchase, worth ₹896m, paying ₹524 per share.

The good news, alongside the insider buying, for Hindustan Foods bulls is that insiders (collectively) have a meaningful investment in the stock. Notably, they have an enviable stake in the company, worth ₹19b. Coming in at 27% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. Very encouraging.

Should You Add Hindustan Foods To Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Hindustan Foods' strong EPS growth. On top of that, insiders own a significant stake in the company and have been buying more shares. So it's fair to say that this stock may well deserve a spot on your watchlist. Before you take the next step you should know about the 1 warning sign for Hindustan Foods that we have uncovered.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Hindustan Foods, you'll probably love this curated collection of companies in IN that have an attractive valuation alongside 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.