Here's Why Supreme Petrochem (NSE:SPLPETRO) Has Caught The Eye Of Investors

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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 Supreme Petrochem (NSE:SPLPETRO). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

See our latest analysis for Supreme Petrochem

Supreme Petrochem's Improving Profits

Supreme Petrochem has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. Thus, it makes sense to focus on more recent growth rates, instead. It's good to see that Supreme Petrochem's EPS has grown from ₹67.73 to ₹75.10 over twelve months. This amounts to a 11% gain; a figure that shareholders will be pleased to see.

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. On the one hand, Supreme Petrochem's EBIT margins fell over the last year, but on the other hand, revenue grew. So it seems the future may hold further growth, especially if EBIT margins can remain steady.

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 Supreme Petrochem's balance sheet strength, before getting too excited.

Are Supreme Petrochem Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Not only did Supreme Petrochem insiders refrain from selling stock during the year, but they also spent ₹5.2m buying it. That's nice to see, because it suggests insiders are optimistic.

Recent insider purchases of Supreme Petrochem stock is not the only way management has kept the interests of the general public shareholders in mind. Specifically, the CEO is paid quite reasonably for a company of this size. For companies with market capitalisations between ₹32b and ₹126b, like Supreme Petrochem, the median CEO pay is around ₹30m.

The Supreme Petrochem CEO received total compensation of just ₹11m in the year 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 good governance, more generally.

Should You Add Supreme Petrochem To Your Watchlist?

One positive for Supreme Petrochem is that it is growing EPS. That's nice to see. And there's more to love too, with modest CEO remuneration and insider buying interest continuing the positives for the company. If these factors aren't enough to secure Supreme Petrochem a spot on the watchlist, then it certainly warrants a closer look at the very least. We don't want to rain on the parade too much, but we did also find 1 warning sign for Supreme Petrochem that you need to be mindful of.

Keen growth investors love to see insider buying. Thankfully, Supreme Petrochem isn't the only one. You can see a 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.