Here's Why I Think Advanced Enzyme Technologies (NSE:ADVENZYMES) Might Deserve Your Attention Today

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

So if you're like me, you might be more interested in profitable, growing companies, like Advanced Enzyme Technologies (NSE:ADVENZYMES). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

See our latest analysis for Advanced Enzyme Technologies

Advanced Enzyme Technologies's Earnings Per Share Are Growing.

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. It certainly is nice to see that Advanced Enzyme Technologies has managed to grow EPS by 18% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Advanced Enzyme Technologies maintained stable EBIT margins over the last year, all while growing revenue 4.5% to ₹4.5b. That's progress.

In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.

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 Advanced Enzyme Technologies's balance sheet strength, before getting too excited.

Are Advanced Enzyme Technologies Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

We do note that, in the last year, insiders sold -₹2.5m worth of shares. But that's far less than the ₹64m insiders spend purchasing stock. I find this encouraging because it suggests they are optimistic about the Advanced Enzyme Technologies's future. It is also worth noting that it was Director of Operations & Whole Time Director Mukund Kabra who made the biggest single purchase, worth ₹13m, paying ₹99.00 per share.

On top of the insider buying, we can also see that Advanced Enzyme Technologies insiders own a large chunk of the company. In fact, they own 48% of the shares, making insiders a very influential shareholder group. I'm reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. At the current share price, that insider holding is worth a whopping ₹15b. Now that's what I call some serious skin in the game!

Should You Add Advanced Enzyme Technologies To Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Advanced Enzyme Technologies's 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 I think this stock may well deserve a spot on your watchlist. However, before you get too excited we've discovered 2 warning signs for Advanced Enzyme Technologies that you should be aware of.

The good news is that Advanced Enzyme Technologies is not the only growth stock with insider buying. Here's a list of them... 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. 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.
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