Should You Be Adding Chambal Fertilisers and Chemicals (NSE:CHAMBLFERT) To Your Watchlist Today?

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Chambal Fertilisers and Chemicals (NSE:CHAMBLFERT). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

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Chambal Fertilisers and Chemicals' Improving Profits

Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So it's no surprise that some investors are more inclined to invest in profitable businesses. To the delight of shareholders, Chambal Fertilisers and Chemicals' EPS soared from ₹30.84 to ₹41.17, over the last year. That's a fantastic gain of 33%.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Unfortunately, Chambal Fertilisers and Chemicals' revenue dropped 7.3% last year, but the silver lining is that EBIT margins improved from 9.8% to 13%. That's not a good look.

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.

See our latest analysis for Chambal Fertilisers and Chemicals

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Chambal Fertilisers and Chemicals' future EPS 100% free.

Are Chambal Fertilisers and Chemicals Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Chambal Fertilisers and Chemicals insiders have a significant amount of capital invested in the stock. Holding ₹7.0b worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. This would indicate that the goals of shareholders and management are one and the same.

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. A brief analysis of the CEO compensation suggests they are. For companies with market capitalisations between ₹171b and ₹546b, like Chambal Fertilisers and Chemicals, the median CEO pay is around ₹49m.

The CEO of Chambal Fertilisers and Chemicals only received ₹16m in total compensation for the year ending March 2024. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.

Is Chambal Fertilisers and Chemicals Worth Keeping An Eye On?

You can't deny that Chambal Fertilisers and Chemicals has grown its earnings per share at a very impressive rate. That's attractive. If that's not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. This may only be a fast rundown, but the key takeaway is that Chambal Fertilisers and Chemicals is worth keeping an eye on. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Chambal Fertilisers and Chemicals , and understanding this should be part of your investment process.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of Indian companies which have demonstrated growth backed by significant insider holdings.

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. 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.