Do Chambal Fertilisers and Chemicals's (NSE:CHAMBLFERT) Earnings Warrant Your Attention?

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.

So if you're like me, you might be more interested in profitable, growing companies, like Chambal Fertilisers and Chemicals (NSE:CHAMBLFERT). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. 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.

View our latest analysis for Chambal Fertilisers and Chemicals

Chambal Fertilisers and Chemicals's Earnings Per Share Are Growing.

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Who among us would not applaud Chambal Fertilisers and Chemicals's stratospheric annual EPS growth of 49%, compound, over the last three years? Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Chambal Fertilisers and Chemicals shareholders can take confidence from the fact that EBIT margins are up from 11% to 15%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

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 Chambal Fertilisers and Chemicals's balance sheet strength, before getting too excited.

Are Chambal Fertilisers and Chemicals Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Despite -₹6.7m worth of sales, Chambal Fertilisers and Chemicals insiders have overwhelmingly been buying the stock, spending ₹32m on purchases in the last twelve months. On balance, to me, this signals their optimism. It is also worth noting that it was Jyotsna Poddar who made the biggest single purchase, worth ₹27m, paying ₹135 per share.

Along with the insider buying, another encouraging sign for Chambal Fertilisers and Chemicals is that insiders, as a group, have a considerable shareholding. To be specific, they have ₹2.1b worth of shares. That's a lot of money, and no small incentive to work hard. Even though that's only about 3.0% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Should You Add Chambal Fertilisers and Chemicals To Your Watchlist?

Chambal Fertilisers and Chemicals's earnings per share have taken off like a rocket aimed right at the moon. Just as heartening; insiders both own and are buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Chambal Fertilisers and Chemicals deserves timely attention. Still, you should learn about the 2 warning signs we've spotted with Chambal Fertilisers and Chemicals (including 1 which shouldn't be ignored) .

The good news is that Chambal Fertilisers and Chemicals 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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