Here's Why Ramkrishna Forgings (NSE:RKFORGE) Has Caught The Eye Of Investors

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like Ramkrishna Forgings (NSE:RKFORGE), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

Check out our latest analysis for Ramkrishna Forgings

How Fast Is Ramkrishna Forgings Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. It certainly is nice to see that Ramkrishna Forgings has managed to grow EPS by 19% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

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. The music to the ears of Ramkrishna Forgings shareholders is that EBIT margins have grown from 8.3% to 15% in the last 12 months and revenues are on an upwards trend as well. Both of which are great metrics to check off for potential growth.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

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 Ramkrishna Forgings' balance sheet strength, before getting too excited.

Are Ramkrishna Forgings Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Not only did Ramkrishna Forgings insiders refrain from selling stock during the year, but they also spent ₹5.9m buying it. That's nice to see, because it suggests insiders are optimistic. It is also worth noting that it was MD & Executive Director Naresh Jalan who made the biggest single purchase, worth ₹5.0m, paying ₹199 per share.

Along with the insider buying, another encouraging sign for Ramkrishna Forgings is that insiders, as a group, have a considerable shareholding. Holding ₹4.2b worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. Amounting to 15% of the outstanding shares, indicating that insiders are also significantly impacted by the decisions they make on the behalf of the business.

Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because Ramkrishna Forgings' CEO, Naresh Jalan, is paid at a relatively modest level when compared to other CEOs for companies of this size. The median total compensation for CEOs of companies similar in size to Ramkrishna Forgings, with market caps between ₹16b and ₹64b, is around ₹20m.

The Ramkrishna Forgings CEO received ₹18m in compensation for the year ending March 2021. That is actually below the median for CEO's of similarly sized companies. 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.

Should You Add Ramkrishna Forgings To Your Watchlist?

You can't deny that Ramkrishna Forgings has grown its earnings per share at a very impressive rate. That's attractive. Not only that, but we can see that insiders both own a lot of, and are buying more shares in the company. So it's fair to say that this stock may well deserve a spot on your watchlist. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for Ramkrishna Forgings (1 is concerning) you should be aware of.

The good news is that Ramkrishna Forgings is not the only growth stock with insider buying. Here's a list of them... 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.

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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.