Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. 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 Andhra Sugars (NSE:ANDHRSUGAR), 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.
How Fast Is Andhra Sugars Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. It's no surprise, then, that I like to invest in companies with EPS growth. We can see that in the last three years Andhra Sugars grew its EPS by 5.7% per year. While that sort of growth rate isn't amazing, it does show the business is growing.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. On the one hand, Andhra Sugars's EBIT margins fell over the last year, but on the other hand, revenue grew. So it seems the future my hold further growth, especially if EBIT margins can stabilize.
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
Since Andhra Sugars is no giant, with a market capitalization of ₹21b, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Andhra Sugars Insiders Aligned With All Shareholders?
Personally, I like to see high insider ownership of a company, since it suggests that it will be managed in the interests of shareholders. So we're pleased to report that Andhra Sugars insiders own a meaningful share of the business. Actually, with 42% of the company to their names, insiders are profoundly invested in the business. I'm always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. With that sort of holding, insiders have about ₹9.0b riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!
Does Andhra Sugars Deserve A Spot On Your Watchlist?
One positive for Andhra Sugars is that it is growing EPS. That's nice to see. Just as polish makes silverware pop, the high level of insider ownership enhances my enthusiasm for this growth. The combination sparks joy for me, so I'd consider keeping the company on a watchlist. Even so, be aware that Andhra Sugars is showing 2 warning signs in our investment analysis , you should know about...
Although Andhra Sugars certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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.