Is Now The Time To Put Rashtriya Chemicals and Fertilizers (NSE:RCF) On Your Watchlist?

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Rashtriya Chemicals and Fertilizers (NSE:RCF). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Rashtriya Chemicals and Fertilizers with the means to add long-term value to shareholders.

See our latest analysis for Rashtriya Chemicals and Fertilizers

Rashtriya Chemicals and Fertilizers' Improving Profits

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. As a result, we'll zoom in on growth over the last year, instead. Rashtriya Chemicals and Fertilizers' EPS shot up from ₹10.47 to ₹16.62; a result that's bound to keep shareholders happy. That's a impressive gain of 59%.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. While we note Rashtriya Chemicals and Fertilizers achieved similar EBIT margins to last year, revenue grew by a solid 96% to ₹183b. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. 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?

As a general rule, it's worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. Our analysis has discovered that the median total compensation for the CEOs of companies like Rashtriya Chemicals and Fertilizers with market caps between ₹33b and ₹133b is about ₹36m.

The Rashtriya Chemicals and Fertilizers CEO received total compensation of just ₹7.3m in the year to March 2022. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

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. Strong EPS growth is a great look for the company and reasonable CEO compensation sweetens the deal for investors ass it alludes to management being conscious of frivolous spending. So this stock is well worth an addition to your watchlist as it has the potential to provide great value to shareholders. It is worth noting though that we have found 4 warning signs for Rashtriya Chemicals and Fertilizers (2 are a bit concerning!) that you need to take into consideration.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you 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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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.