Do Rashtriya Chemicals and Fertilizers' (NSE:RCF) Earnings Warrant Your Attention?

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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

In contrast to all that, many investors prefer to focus on companies like Rashtriya Chemicals and Fertilizers (NSE:RCF), which has not only revenues, but also profits. Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

See our latest analysis for Rashtriya Chemicals and Fertilizers

How Fast Is Rashtriya Chemicals and Fertilizers Growing Its Earnings Per Share?

In the last three years Rashtriya Chemicals and Fertilizers' earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. So it would be better to isolate the growth rate over the last year for our analysis. Rashtriya Chemicals and Fertilizers' EPS skyrocketed from ₹12.73 to ₹17.52, in just one year; a result that's bound to bring a smile to shareholders. That's a impressive gain of 38%.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. EBIT margins for Rashtriya Chemicals and Fertilizers remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 67% to ₹215b. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

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 Rashtriya Chemicals and Fertilizers' balance sheet strength, before getting too excited.

Are Rashtriya Chemicals and Fertilizers Insiders Aligned With All Shareholders?

Prior to investment, it's always a good idea to check that the management team is paid reasonably. Pay levels around or below the median, can be a sign that shareholder interests are well considered. The median total compensation for CEOs of companies similar in size to Rashtriya Chemicals and Fertilizers, with market caps between ₹33b and ₹132b, is around ₹33m.

Rashtriya Chemicals and Fertilizers' CEO took home a total compensation package of ₹7.3m in the year prior to March 2022. First impressions seem to indicate a compensation policy that is favourable to shareholders. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.

Is Rashtriya Chemicals and Fertilizers Worth Keeping An Eye On?

For growth investors, Rashtriya Chemicals and Fertilizers' raw rate of earnings growth is a beacon in the night. The fast growth bodes well while the very reasonable CEO pay assists builds some confidence in the board. Based on these factors, this stock may well deserve a spot on your watchlist, or even a little further research. Before you take the next step you should know about the 1 warning sign for Rashtriya Chemicals and Fertilizers that we have uncovered.

Although Rashtriya Chemicals and Fertilizers certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, 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. 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.