Here's Why We Think Satia Industries (NSE:SATIA) Is Well Worth Watching

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.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Satia Industries (NSE:SATIA). 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 Satia Industries

Satia Industries' Improving Profits

In the last three years Satia Industries' 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. It's good to see that Satia Industries' EPS has grown from ₹17.55 to ₹21.80 over twelve months. There's little doubt shareholders would be happy with that 24% gain.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. EBIT margins for Satia Industries remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 9.0% to ₹18b. That's encouraging news for the company!

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

Since Satia Industries is no giant, with a market capitalisation of ₹11b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Satia Industries 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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

While some insiders did sell some of their holdings in Satia Industries, one lone insider trumped that with significant stock purchases. Namely, Chairman Ajay Satia out-laid ₹62m for shares, at about ₹115 per share. That can definitely be seen as a sign of conviction.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Satia Industries insiders own more than a third of the company. In fact, they own 55% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. In terms of absolute value, insiders have ₹5.9b invested in the business, at the current share price. That's nothing to sneeze at!

Is Satia Industries Worth Keeping An Eye On?

One important encouraging feature of Satia Industries is that it is growing profits. On top of that, we've seen insiders buying shares even though they already own plenty. These factors alone make the company an interesting prospect for your watchlist, as well as continuing research. It is worth noting though that we have found 2 warning signs for Satia Industries that you need to take into consideration.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Satia Industries, you'll probably love this curated collection of companies in IN that have witnessed growth alongside 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.