With EPS Growth And More, Gayatri Rubbers and Chemicals (NSE:GRCL) Makes An Interesting Case

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. 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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

In contrast to all that, many investors prefer to focus on companies like Gayatri Rubbers and Chemicals (NSE:GRCL), which has not only revenues, but also profits. 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.

Check out our latest analysis for Gayatri Rubbers and Chemicals

How Fast Is Gayatri Rubbers and Chemicals Growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That means EPS growth is considered a real positive by most successful long-term investors. To the delight of shareholders, Gayatri Rubbers and Chemicals has achieved impressive annual EPS growth of 41%, compound, over the last three years. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.

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. Gayatri Rubbers and Chemicals shareholders can take confidence from the fact that EBIT margins are up from 6.4% to 9.9%, and revenue is growing. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

Gayatri Rubbers and Chemicals isn't a huge company, given its market capitalisation of ₹2.3b. That makes it extra important to check on its balance sheet strength.

Are Gayatri Rubbers and Chemicals Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So those who are interested in Gayatri Rubbers and Chemicals will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. To be exact, company insiders hold 73% of the company, so their decisions have a significant impact on their investments. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. With that sort of holding, insiders have about ₹1.7b riding on the stock, at current prices. So there's plenty there to keep them focused!

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. Well, based on the CEO pay, you'd argue that they are indeed. For companies with market capitalisations under ₹17b, like Gayatri Rubbers and Chemicals, the median CEO pay is around ₹3.1m.

The CEO of Gayatri Rubbers and Chemicals was paid just ₹1.2m in total compensation for the year ending March 2023. You could consider this pay as somewhat symbolic, which suggests the CEO does not need a lot of compensation to stay motivated. 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 good governance, more generally.

Does Gayatri Rubbers and Chemicals Deserve A Spot On Your Watchlist?

Gayatri Rubbers and Chemicals' earnings per share have been soaring, with growth rates sky high. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The sharp increase in earnings could signal good business momentum. Gayatri Rubbers and Chemicals is certainly doing some things right and is well worth investigating. Even so, be aware that Gayatri Rubbers and Chemicals is showing 4 warning signs in our investment analysis , and 1 of those is a bit unpleasant...

Although Gayatri Rubbers and Chemicals certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of Indian companies that not only boast of strong growth but have strong insider backing.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com