Here's Why We Think Bhansali Engineering Polymers (NSE:BEPL) Is Well Worth Watching

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 the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Bhansali Engineering Polymers (NSE:BEPL). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

View our latest analysis for Bhansali Engineering Polymers

Bhansali Engineering Polymers'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). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Impressively, Bhansali Engineering Polymers has grown EPS by 28% 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 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. Bhansali Engineering Polymers's EBIT margins have actually improved by 14.9 percentage points in the last year, to reach 22%, but, on the flip side, revenue was down 11%. That's not ideal.

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

Are Bhansali Engineering Polymers Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. 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 haven't seen any insiders selling Bhansali Engineering Polymers shares, in the last year. So it's definitely nice that Dhudidevi Bhansali bought ₹2.4m worth of shares at an average price of around ₹27.98.

On top of the insider buying, it's good to see that Bhansali Engineering Polymers insiders have a valuable investment in the business. Notably, they have an enormous stake in the company, worth ₹8.0b. That equates to 31% of the company, making insiders powerful and aligned with other shareholders. So it might be my imagination, but I do sense the glimmer of an opportunity.

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, Babulal Bhansali, is paid less than the median for similar sized companies. I discovered that the median total compensation for the CEOs of companies like Bhansali Engineering Polymers with market caps between ₹15b and ₹59b is about ₹26m.

The CEO of Bhansali Engineering Polymers only received ₹6.0m in total compensation for the year ending . That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.

Is Bhansali Engineering Polymers Worth Keeping An Eye On?

You can't deny that Bhansali Engineering Polymers has grown its earnings per share at a very impressive rate. That's attractive. The cranberry sauce on the turkey is that insiders own a bunch of shares, and one has been buying more. So I do think this is one stock worth watching. You still need to take note of risks, for example - Bhansali Engineering Polymers has 1 warning sign we think you should be aware of.

The good news is that Bhansali Engineering Polymers 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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