Should You Be Adding Chembond Chemicals (NSE:CHEMBOND) To Your Watchlist Today?

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

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 Chembond Chemicals (NSE:CHEMBOND). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

View our latest analysis for Chembond Chemicals

Chembond Chemicals' Improving Profits

In business, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS) performance. Which is why EPS growth is looked upon so favourably. Commendations have to be given in seeing that Chembond Chemicals grew its EPS from ₹7.95 to ₹31.63, in one short year. Even though that growth rate may not be repeated, that looks like a breakout improvement. Could this be a sign that the business has reached an inflection point?

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. The music to the ears of Chembond Chemicals shareholders is that EBIT margins have grown from 3.9% to 9.7% in the last 12 months and revenues are on an upwards trend as well. That's great to see, on both counts.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

Since Chembond Chemicals is no giant, with a market capitalisation of ₹7.6b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Chembond Chemicals Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

A great takeaway for shareholders is that company insiders within Chembond Chemicals have collectively spent ₹515k acquiring shares in the company. While this isn't much, we also note an absence of sales.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Chembond Chemicals insiders own more than a third of the company. Owning 48% of the company, insiders have plenty riding on the performance of the the share price. Those who are comforted by solid insider ownership like this should be happy, as it implies that those running the business are genuinely motivated to create shareholder value. In terms of absolute value, insiders have ₹3.7b invested in the business, at the current share price. That should be more than enough to keep them focussed on creating shareholder value!

Does Chembond Chemicals Deserve A Spot On Your Watchlist?

Chembond Chemicals' earnings have taken off in quite an impressive fashion. To make matters even better, the company insiders who know the company best have put their faith in the its future and have been buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Chembond Chemicals deserves timely attention. Don't forget that there may still be risks. For instance, we've identified 3 warning signs for Chembond Chemicals (1 doesn't sit too well with us) you should be aware of.

The good news is that Chembond 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. 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.