Do Gulshan Polyols's (NSE:GULPOLY) 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 Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Gulshan Polyols (NSE:GULPOLY). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

Check out our latest analysis for Gulshan Polyols

Gulshan Polyols's Earnings Per Share Are Growing.

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. I, for one, am blown away by the fact that Gulshan Polyols has grown EPS by 57% per year, over the last three years. That sort of growth never lasts long, but like a shooting star it is well worth watching when it happens.

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. Gulshan Polyols shareholders can take confidence from the fact that EBIT margins are up from 10% to 13%, and revenue is growing. 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. For finer detail, click on the image.

Gulshan Polyols isn't a huge company, given its market capitalization of ₹15b. That makes it extra important to check on its balance sheet strength.

Are Gulshan Polyols 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. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Insiders both bought and sold Gulshan Polyols shares in the last year, but the good news is they spent ₹2.2m more buying than they netted selling. So, on balance, the insider transactions are mildly encouraging. Zooming in, we can see that the biggest insider purchase was by Arun Jain for ₹10m worth of shares, at about ₹139 per share.

On top of the insider buying, we can also see that Gulshan Polyols insiders own a large chunk of the company. Indeed, with a collective holding of 72%, company insiders are in control and have plenty of capital behind the venture. This makes me think they will be incentivised to plan for the long term - something I like to see. In terms of absolute value, insiders have ₹11b invested in the business, using the current share price. That should be more than enough to keep them focussed on creating shareholder value!

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. The cherry on top is that the CEO, Ashwani Vats is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between ₹7.7b and ₹31b, like Gulshan Polyols, the median CEO pay is around ₹14m.

Gulshan Polyols offered total compensation worth ₹7.8m to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. 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.

Should You Add Gulshan Polyols To Your Watchlist?

Gulshan Polyols's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. Just as heartening; insiders both own and are buying more stock. Because of the potential that it has reached an inflection point, I'd suggest Gulshan Polyols belongs on the top of your watchlist. What about risks? Every company has them, and we've spotted 3 warning signs for Gulshan Polyols you should know about.

The good news is that Gulshan Polyols 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.