Here's Why We Think Fertilisers And Chemicals Travancore (NSE:FACT) Is Well Worth Watching

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Fertilisers And Chemicals Travancore (NSE:FACT). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Fertilisers And Chemicals Travancore with the means to add long-term value to shareholders.

Check out our latest analysis for Fertilisers And Chemicals Travancore

Fertilisers And Chemicals Travancore's 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. In previous twelve months, Fertilisers And Chemicals Travancore's EPS has risen from ₹6.35 to ₹6.96. That amounts to a small improvement of 9.7%.

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. While Fertilisers And Chemicals Travancore did well to grow revenue over the last year, EBIT margins were dampened at the same time. So if EBIT margins can stabilize, this top-line growth should pay off for shareholders.

The chart below shows how the company's bottom and top lines have progressed over time. 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 Fertilisers And Chemicals Travancore's balance sheet strength, before getting too excited.

Are Fertilisers And Chemicals Travancore Insiders Aligned With All Shareholders?

It's a good habit to check into a company's remuneration policies to ensure that the CEO and management team aren't putting their own interests before that of the shareholder with excessive salary packages. For companies with market capitalisations between ₹32b and ₹127b, like Fertilisers And Chemicals Travancore, the median CEO pay is around ₹29m.

The CEO of Fertilisers And Chemicals Travancore was paid just ₹4.0m in total compensation for the year ending March 2021. This total may indicate that the CEO is sacrificing take home pay for performance-based benefits, ensuring that their motivations are synonymous with strong company results. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add Fertilisers And Chemicals Travancore To Your Watchlist?

One positive for Fertilisers And Chemicals Travancore is that it is growing EPS. That's nice to see. To add to this, the modest CEO compensation should tell investors that the directors have an active interest in delivering the best for shareholders. So based on its merits, the stock deserves further research, if not an addition to your watchlist. You still need to take note of risks, for example - Fertilisers And Chemicals Travancore has 1 warning sign we think you should be aware of.

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 free list of them here.

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.