Should You Be Adding Tembo Global Industries (NSE:TEMBO) To Your Watchlist Today?

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. 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.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Tembo Global Industries (NSE:TEMBO). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

See our latest analysis for Tembo Global Industries

How Quickly Is Tembo Global Industries Increasing Earnings Per Share?

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 Tembo Global Industries has managed to grow EPS by 26% per year over three years. So it's not surprising to see the company trades on a very high multiple of (past) earnings.

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. While we note Tembo Global Industries's EBIT margins were flat over the last year, revenue grew by a solid 34% to ₹1.1b. That's a real positive.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

Tembo Global Industries isn't a huge company, given its market capitalization of ₹2.2b. That makes it extra important to check on its balance sheet strength.

Are Tembo Global Industries Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So we're pleased to report that Tembo Global Industries insiders own a meaningful share of the business. In fact, they own 80% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes me think they will be incentivised to plan for the long term - something I like to see. With that sort of holding, insiders have about ₹1.8b riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!

Does Tembo Global Industries Deserve A Spot On Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Tembo Global Industries's strong EPS growth. Further, the high level of insider ownership impresses me, and suggests that I'm not the only one who appreciates the EPS growth. Fast growth and confident insiders should be enough to warrant further research. So the answer is that I do think this is a good stock to follow along with. You should always think about risks though. Case in point, we've spotted 4 warning signs for Tembo Global Industries you should be aware of, and 2 of them don't sit too well with us.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

When trading Tembo Global Industries or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.