With EPS Growth And More, India Cements (NSE:INDIACEM) Is Interesting

By
Simply Wall St
Published
January 22, 2022
NSEI:INDIACEM
Source: Shutterstock

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 India Cements (NSE:INDIACEM). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

View our latest analysis for India Cements

India Cements's Improving Profits

Over the last three years, India Cements has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. Thus, it makes sense to focus on more recent growth rates, instead. Like the last firework on New Year's Eve accelerating into the sky, India Cements's EPS shot from ₹2.24 to ₹6.16, over the last year. Year on year growth of 175% is certainly a sight to behold.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. India Cements maintained stable EBIT margins over the last year, all while growing revenue 16% to ₹49b. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

earnings-and-revenue-history
NSEI:INDIACEM Earnings and Revenue History January 22nd 2022

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 India Cements's balance sheet strength, before getting too excited.

Are India Cements Insiders Aligned With All Shareholders?

I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. As a result, I'm encouraged by the fact that insiders own India Cements shares worth a considerable sum. Indeed, they have a glittering mountain of wealth invested in it, currently valued at ₹21b. That equates to 30% of the company, making insiders powerful and aligned with other shareholders. Very encouraging.

Is India Cements Worth Keeping An Eye On?

India Cements's earnings have taken off like any random crypto-currency did, back in 2017. That sort of growth is nothing short of eye-catching, and the large investment held by insiders certainly brightens my view of the company. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So yes, on this short analysis I do think it's worth considering India Cements for a spot on your watchlist. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for India Cements (1 makes us a bit uncomfortable) you should be aware of.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like 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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