I Built A List Of Growing Companies And Advanced Enzyme Technologies (NSE:ADVENZYMES) Made The Cut

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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.

In contrast to all that, I prefer to spend time on companies like Advanced Enzyme Technologies (NSE:ADVENZYMES), which has not only revenues, but also profits. Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

Check out 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). That makes EPS growth an attractive quality for any company. Impressively, Advanced Enzyme Technologies has grown EPS by 23% per year, compound, in the last 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). The good news is that Advanced Enzyme Technologies is growing revenues, and EBIT margins improved by 2.9 percentage points to 42%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Advanced Enzyme Technologies Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. Because oftentimes, 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.

While Advanced Enzyme Technologies insiders did net -₹27m selling stock over the last year, they invested ₹64m, a much higher figure. On balance, to me, this signals their optimism. 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.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Advanced Enzyme Technologies insiders own more than a third 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. And their holding is extremely valuable at the current share price, totalling ₹17b. That means they have plenty of their own capital riding on the performance of the business!

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 I do think this is one stock worth watching. We don't want to rain on the parade too much, but we did also find 1 warning sign for Advanced Enzyme Technologies that you need to be mindful of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Advanced Enzyme Technologies, you'll probably love this free list of growing companies that insiders are buying.

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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