Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But as Warren Buffett has mused, ‘If you’ve been playing poker for half an hour and you still don’t know who the patsy is, you’re the patsy.’ When they buy such story stocks, investors are all too often the patsy.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Sree Rayalaseema Hi-Strength Hypo (NSE:SRHHYPOLTD). Now, I’m not saying that the stock is necessarily undervalued today; but I can’t shake an appreciation for the profitability of the business itself. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
Check out our latest analysis for Sree Rayalaseema Hi-Strength Hypo
How Fast Is Sree Rayalaseema Hi-Strength Hypo Growing?
If you believe that markets are even vaguely efficient, then over the long term you’d expect a company’s share price to follow its earnings per share (EPS). That makes EPS growth an attractive quality for any company. It certainly is nice to see that Sree Rayalaseema Hi-Strength Hypo has managed to grow EPS by 28% per year over three years. If the company can sustain that sort of growth, we’d expect shareholders to come away winners.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Sree Rayalaseema Hi-Strength Hypo shareholders can take confidence from the fact that EBIT margins are up from 4.7% to 6.7%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.
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.
Sree Rayalaseema Hi-Strength Hypo isn’t a huge company, given its market capitalization of ₹2.9b. That makes it extra important to check on its balance sheet strength.
Are Sree Rayalaseema Hi-Strength Hypo Insiders Aligned With All Shareholders?
Does Sree Rayalaseema Hi-Strength Hypo Deserve A Spot On Your Watchlist?
You can’t deny that Sree Rayalaseema Hi-Strength Hypo has grown its earnings per share at a very impressive rate. That’s attractive. Of course, just because Sree Rayalaseema Hi-Strength Hypo is growing does not mean it is undervalued. If you’re wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
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
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.