Here's Why We Think Madhusudan Masala (NSE:MADHUSUDAN) Is Well Worth Watching

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

In contrast to all that, many investors prefer to focus on companies like Madhusudan Masala (NSE:MADHUSUDAN), which has not only revenues, but also profits. Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

View our latest analysis for Madhusudan Masala

Madhusudan Masala's Earnings Per Share Are Growing

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, Madhusudan Masala has grown EPS by 13% per year. That's a pretty good rate, if the company can sustain it.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Madhusudan Masala maintained stable EBIT margins over the last year, all while growing revenue 48% to ₹2.1b. That's a real positive.

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.

Since Madhusudan Masala is no giant, with a market capitalisation of ₹2.2b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Madhusudan Masala Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. 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.

The good news is that Madhusudan Masala insiders spent a whopping ₹79m on stock in just one year, without so much as a single sale. Buying like that is a fantastic look for the company and should rouse the market in anticipation for the future. Zooming in, we can see that the biggest insider purchase was by Chairman & MD Rishit Kotecha for ₹36m worth of shares, at about ₹45.25 per share.

On top of the insider buying, we can also see that Madhusudan Masala insiders own a large chunk of the company. To be exact, company insiders hold 80% of the company, so their decisions have a significant impact on their investments. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. In terms of absolute value, insiders have ₹1.8b invested in the business, at the current share price. That should be more than enough to keep them focussed on creating shareholder value!

Should You Add Madhusudan Masala To Your Watchlist?

One important encouraging feature of Madhusudan Masala is that it is growing profits. In addition, insiders have been busy adding to their sizeable holdings in the company. That makes the company a prime candidate for your watchlist - and arguably a research priority. It is worth noting though that we have found 3 warning signs for Madhusudan Masala (2 are a bit unpleasant!) that you need to take into consideration.

Keen growth investors love to see insider activity. Thankfully, Madhusudan Masala isn't the only one. You can see a a curated list of Indian companies which have exhibited consistent growth accompanied by high insider ownership.

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.