Does Som Distilleries & Breweries (NSE:SDBL) Deserve A Spot On Your Watchlist?

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 currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Som Distilleries & Breweries (NSE:SDBL). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

See our latest analysis for Som Distilleries & Breweries

How Fast Is Som Distilleries & Breweries Growing Its Earnings Per Share?

In the last three years Som Distilleries & Breweries' earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. Thus, it makes sense to focus on more recent growth rates, instead. In impressive fashion, Som Distilleries & Breweries' EPS grew from ₹5.41 to ₹9.66, over the previous 12 months. Year on year growth of 79% is certainly a sight to behold. The best case scenario? That the business has hit a true inflection point.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note Som Distilleries & Breweries achieved similar EBIT margins to last year, revenue grew by a solid 62% to ₹10b. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

Since Som Distilleries & Breweries is no giant, with a market capitalisation of ₹23b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Som Distilleries & Breweries 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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The good news is that Som Distilleries & Breweries insiders spent a whopping ₹78m 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. It is also worth noting that it was company insider Deepak Arora who made the biggest single purchase, worth ₹6.6m, paying ₹331 per share.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Som Distilleries & Breweries insiders own more than a third of the company. To be exact, company insiders hold 52% 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. To give you an idea, the value of insiders' holdings in the business are valued at ₹12b at the current share price. That's nothing to sneeze at!

Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because on our analysis the CEO, Jagdish Arora, is paid less than the median for similar sized companies. For companies with market capitalisations between ₹8.3b and ₹33b, like Som Distilleries & Breweries, the median CEO pay is around ₹17m.

Som Distilleries & Breweries offered total compensation worth ₹14m to its CEO in the year to March 2023. That seems pretty reasonable, especially given it's below the median for similar sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is Som Distilleries & Breweries Worth Keeping An Eye On?

Som Distilleries & Breweries' earnings per share growth have been climbing higher at an appreciable rate. To make matters even better, the company insiders who know the company best have put their faith in the its future and have been buying more stock. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Som Distilleries & Breweries belongs near the top of your watchlist. It is worth noting though that we have found 2 warning signs for Som Distilleries & Breweries (1 is a bit unpleasant!) that you need to take into consideration.

Keen growth investors love to see insider buying. Thankfully, Som Distilleries & Breweries 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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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.