I Ran A Stock Scan For Earnings Growth And Punjab Chemicals and Crop Protection (NSE:PUNJABCHEM) Passed With Ease

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

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). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. 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.

Check out our latest analysis for Punjab Chemicals and Crop Protection

How Fast Is Punjab Chemicals and Crop Protection Growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. It's no surprise, then, that I like to invest in companies with EPS growth. Who among us would not applaud Punjab Chemicals and Crop Protection's stratospheric annual EPS growth of 59%, compound, 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.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Punjab Chemicals and Crop Protection shareholders can take confidence from the fact that EBIT margins are up from 9.1% to 13%, and revenue is growing. That's great to see, on both counts.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

Since Punjab Chemicals and Crop Protection is no giant, with a market capitalization of ₹19b, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Punjab Chemicals and Crop Protection 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. So it is good to see that Punjab Chemicals and Crop Protection insiders have a significant amount of capital invested in the stock. Indeed, they hold ₹1.7b worth of its stock. That's a lot of money, and no small incentive to work hard. That amounts to 8.6% of the company, demonstrating a degree of high-level alignment with shareholders.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. I discovered that the median total compensation for the CEOs of companies like Punjab Chemicals and Crop Protection with market caps between ₹7.4b and ₹30b is about ₹14m.

The Punjab Chemicals and Crop Protection CEO received total compensation of only ₹1.9m in the year to . This could be considered a token amount, and indicates that the company does not need to use payment to motivate the CEO - that is often a good sign. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add Punjab Chemicals and Crop Protection To Your Watchlist?

Punjab Chemicals and Crop Protection's earnings per share have taken off like a rocket aimed right at the moon. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The sharp increase in earnings could signal good business momentum. Big growth can make big winners, so I do think Punjab Chemicals and Crop Protection is worth considering carefully. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for Punjab Chemicals and Crop Protection (1 is a bit concerning) you should be aware of.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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.

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.

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