Here's Why I Think Punjab Chemicals and Crop Protection (NSE:PUNJABCHEM) 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.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Punjab Chemicals and Crop Protection (NSE:PUNJABCHEM). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

View our latest analysis for Punjab Chemicals and Crop Protection

How Fast Is Punjab Chemicals and Crop Protection Growing Its Earnings Per Share?

In a capitalist society capital chases profits, and that means share prices tend rise with earnings per share (EPS). So like the hint of a smile on a face that I love, growing EPS generally makes me look twice. It is therefore awe-striking that Punjab Chemicals and Crop Protection's EPS went from ₹9.40 to ₹35.28 in just one year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement.

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. Unfortunately, Punjab Chemicals and Crop Protection's revenue dropped 8.1% last year, but the silver lining is that EBIT margins improved from 7.4% to 13%. That's not ideal.

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.

Punjab Chemicals and Crop Protection isn't a huge company, given its market capitalization of ₹11b. That makes it extra important to check on its balance sheet strength.

Are Punjab Chemicals and Crop Protection 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. So it is good to see that Punjab Chemicals and Crop Protection insiders have a significant amount of capital invested in the stock. To be specific, they have ₹1.1b worth of shares. That's a lot of money, and no small incentive to work hard. Those holdings account for over 10% of the company; visible skin in the game.

Does Punjab Chemicals and Crop Protection Deserve A Spot On Your Watchlist?

Punjab Chemicals and Crop Protection's earnings per share have taken off like a rocket aimed right at the moon. 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 Punjab Chemicals and Crop Protection for a spot on your watchlist. We don't want to rain on the parade too much, but we did also find 1 warning sign for Punjab Chemicals and Crop Protection that you need to be mindful of.

Although Punjab Chemicals and Crop Protection 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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