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

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Som Distilleries & Breweries (NSE:SDBL). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

See our latest analysis for Som Distilleries & Breweries

Som Distilleries & Breweries' Improving Profits

Som Distilleries & Breweries has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. So it would be better to isolate the growth rate over the last year for our analysis. In impressive fashion, Som Distilleries & Breweries' EPS grew from ₹4.64 to ₹10.56, over the previous 12 months. It's a rarity to see 127% year-on-year growth like that. That could be a sign that the business has reached a true inflection point.

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 Som Distilleries & Breweries achieved similar EBIT margins to last year, revenue grew by a solid 65% to ₹12b. 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.

Som Distilleries & Breweries isn't a huge company, given its market capitalisation of ₹22b. That makes it extra important to check on its balance sheet strength.

Are Som Distilleries & Breweries 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.

We do note that, in the last year, insiders sold ₹14m worth of shares. But that's far less than the ₹99m insiders spent purchasing stock. This bodes well for Som Distilleries & Breweries as it highlights the fact that those who are important to the company having a lot of faith in its future. It is also worth noting that it was Chairman & MD Jagdish Arora who made the biggest single purchase, worth ₹11m, paying ₹287 per share.

These recent buys aren't the only encouraging sign for shareholders, as a look at the shareholder registry for Som Distilleries & Breweries will reveal that insiders own a significant piece of the pie. To be exact, company insiders hold 55% of the company, so their decisions have a significant impact on their investments. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. In terms of absolute value, insiders have ₹12b invested in the business, at the current share price. So there's plenty there to keep them focused!

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Jagdish Arora, is paid less than the median for similar sized companies. Our analysis has discovered that the median total compensation for the CEOs of companies like Som Distilleries & Breweries with market caps between ₹8.3b and ₹33b is about ₹16m.

Som Distilleries & Breweries offered total compensation worth ₹14m to its CEO in the year to March 2023. That is actually below the median for CEO's of similarly sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Does Som Distilleries & Breweries Deserve A Spot On Your Watchlist?

Som Distilleries & Breweries' earnings per share growth have been climbing higher at an appreciable rate. Just as heartening; insiders both own and are 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. Before you take the next step you should know about the 1 warning sign for Som Distilleries & Breweries that we have uncovered.

The good news is that Som Distilleries & Breweries is not the only growth stock with insider buying. Here's a list of growth-focused companies in IN 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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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.