With EPS Growth And More, K.M. Sugar Mills (NSE:KMSUGAR) Is Interesting

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

So if you're like me, you might be more interested in profitable, growing companies, like K.M. Sugar Mills (NSE:KMSUGAR). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

View our latest analysis for K.M. Sugar Mills

How Quickly Is K.M. Sugar Mills 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. K.M. Sugar Mills managed to grow EPS by 5.6% per year, over three years. While that sort of growth rate isn't amazing, it does show the business is growing.

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. While we note K.M. Sugar Mills's EBIT margins were flat over the last year, revenue grew by a solid 78% to ₹6.4b. That's a real positive.

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.

Since K.M. Sugar Mills is no giant, with a market capitalization of ₹1.1b, so you should definitely check its cash and debt before getting too excited about its prospects.

Are K.M. Sugar Mills Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

In the last year insider at K.M. Sugar Mills were both selling and buying shares; but happily, as a group they spent ₹4.6m more on stock, than they netted from selling it. Although I don't particularly like to see selling, the fact that they put more capital in, than they extracted, is a positive in my mind. It is also worth noting that it was MD & Whole Time Director Aditya Jhunjhunwala who made the biggest single purchase, worth ₹2.0m, paying ₹5.71 per share.

And the insider buying isn't the only sign of alignment between shareholders and the board, since K.M. Sugar Mills insiders own more than a third of the company. Indeed, with a collective holding of 51%, company insiders are in control and have plenty of capital behind the venture. This makes me think they will be incentivised to plan for the long term - something I like to see. Of course, K.M. Sugar Mills is a very small company, with a market cap of only ₹1.1b. That means insiders only have ₹572m worth of shares, despite the large proportional holding. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

Does K.M. Sugar Mills Deserve A Spot On Your Watchlist?

One important encouraging feature of K.M. Sugar Mills is that it is growing profits. On top of that, we've seen insiders buying shares even though they already own plenty. That makes the company a prime candidate for my watchlist - and arguably a research priority. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for K.M. Sugar Mills that you should be aware of.

As a growth investor I do like to see insider buying. But K.M. Sugar Mills isn't the only one. You can see a 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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