Here's Why I Think Kirloskar Ferrous Industries (NSE:KIRLFER) Is An Interesting Stock

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. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

In contrast to all that, I prefer to spend time on companies like Kirloskar Ferrous Industries (NSE:KIRLFER), which has not only revenues, but also profits. Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

View our latest analysis for Kirloskar Ferrous Industries

How Fast Is Kirloskar Ferrous Industries Growing Its Earnings Per Share?

Over the last three years, Kirloskar Ferrous Industries 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, Kirloskar Ferrous Industries's EPS shot from ₹5.91 to ₹16.25, over the last year. You don't see 175% year-on-year growth like that, very often.

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. Kirloskar Ferrous Industries's EBIT margins have actually improved by 8.9 percentage points in the last year, to reach 16%, but, on the flip side, revenue was down 10%. That falls short of ideal.

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.

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 Kirloskar Ferrous Industries's balance sheet strength, before getting too excited.

Are Kirloskar Ferrous Industries Insiders Aligned With All Shareholders?

It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. As a result, I'm encouraged by the fact that insiders own Kirloskar Ferrous Industries shares worth a considerable sum. Indeed, they hold ₹2.5b worth of its stock. That's a lot of money, and no small incentive to work hard. That amounts to 11% of the company, demonstrating a degree of high-level alignment with shareholders.

Does Kirloskar Ferrous Industries Deserve A Spot On Your Watchlist?

Kirloskar Ferrous Industries's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. That sort of growth is nothing short of eye-catching, and the large investment held by insiders certainly brightens my view of the company. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So to my mind Kirloskar Ferrous Industries is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. Before you take the next step you should know about the 2 warning signs for Kirloskar Ferrous Industries that we have uncovered.

Although Kirloskar Ferrous Industries certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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. 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.
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