Should You Be Adding Sarda Energy & Minerals (NSE:SARDAEN) To Your Watchlist Today?

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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Sarda Energy & Minerals (NSE:SARDAEN). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for Sarda Energy & Minerals

Sarda Energy & Minerals's Earnings Per Share Are Growing.

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That makes EPS growth an attractive quality for any company. Impressively, Sarda Energy & Minerals has grown EPS by 23% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

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 good news is that Sarda Energy & Minerals is growing revenues, and EBIT margins improved by 4.8 percentage points to 20%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

Since Sarda Energy & Minerals 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 Sarda Energy & Minerals 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 Sarda Energy & Minerals insiders have a significant amount of capital invested in the stock. Given insiders own a small fortune of shares, currently valued at ₹4.7b, they have plenty of motivation to push the business to succeed. That holding amounts to 25% of the stock on issue, thus making insiders influential, and aligned, owners of the business.

Should You Add Sarda Energy & Minerals To Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Sarda Energy & Minerals's strong EPS growth. I think that EPS growth is something to boast of, and it doesn't surprise me that insiders are holding on to a considerable chunk of shares. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. It's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Sarda Energy & Minerals (at least 1 which is potentially serious) , and understanding these should be part of your investment process.

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.

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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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