With EPS Growth And More, Hindcon Chemicals (NSE:HINDCON) Makes An Interesting Case

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. 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.

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 Hindcon Chemicals (NSE:HINDCON). 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.

See our latest analysis for Hindcon Chemicals

How Quickly Is Hindcon Chemicals Increasing Earnings Per Share?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That makes EPS growth an attractive quality for any company. Over the last three years, Hindcon Chemicals has grown EPS by 9.6% per year. That growth rate is fairly good, assuming the company can keep it up.

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. Hindcon Chemicals' EBIT margins have actually improved by 4.9 percentage points in the last year, to reach 10%, but, on the flip side, revenue was down 21%. That's not a good look.

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.

Hindcon Chemicals isn't a huge company, given its market capitalisation of ₹2.1b. That makes it extra important to check on its balance sheet strength.

Are Hindcon Chemicals Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Not only did Hindcon Chemicals insiders refrain from selling stock during the year, but they also spent ₹5.6m buying it. That's nice to see, because it suggests insiders are optimistic. We also note that it was the Chairman & MD, Sanjay Goenka, who made the biggest single acquisition, paying ₹2.5m for shares at about ₹28.60 each.

These recent buys aren't the only encouraging sign for shareholders, as a look at the shareholder registry for Hindcon Chemicals will reveal that insiders own a significant piece of the pie. Indeed, with a collective holding of 58%, company insiders are in control and have plenty of capital behind the venture. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. Of course, Hindcon Chemicals is a very small company, with a market cap of only ₹2.1b. So this large proportion of shares owned by insiders only amounts to ₹1.2b. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

Should You Add Hindcon Chemicals To Your Watchlist?

As previously touched on, Hindcon Chemicals is a growing business, which is encouraging. On top of that, we've seen insiders buying shares even though they already own plenty. That makes the company a prime candidate for your watchlist - and arguably a research priority. It's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Hindcon Chemicals (at least 1 which is a bit unpleasant) , and understanding them should be part of your investment process.

The good news is that Hindcon Chemicals is not the only growth stock with insider buying. Here's a list of growth-focused companies in IN 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.