Should You Be Adding Texmo Pipes and Products (NSE:TEXMOPIPES) To Your Watchlist Today?

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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Texmo Pipes and Products (NSE:TEXMOPIPES). 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. 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 Texmo Pipes and Products

How Fast Is Texmo Pipes and Products 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 means EPS growth is considered a real positive by most successful long-term investors. I, for one, am blown away by the fact that Texmo Pipes and Products has grown EPS by 53% per year, over the last three years. Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.

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). Texmo Pipes and Products maintained stable EBIT margins over the last year, all while growing revenue 6.0% to ₹3.6b. That's progress.

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

Texmo Pipes and Products isn't a huge company, given its market capitalization of ₹890m. That makes it extra important to check on its balance sheet strength.

Are Texmo Pipes and Products Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

It's good to see Texmo Pipes and Products insiders walking the walk, by spending ₹40m on shares in just twelve months. When you contrast that with the complete lack of sales, it's easy for shareholders to brim with joyful expectancy. It is also worth noting that it was MD & Executive Non Independent Director Sanjay Agrawal who made the biggest single purchase, worth ₹22m, paying ₹13.90 per share.

On top of the insider buying, we can also see that Texmo Pipes and Products insiders own a large chunk of the company. In fact, they own 41% of the shares, making insiders a very influential shareholder group. I'm always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. Of course, Texmo Pipes and Products is a very small company, with a market cap of only ₹890m. So despite a large proportional holding, insiders only have ₹365m worth of stock. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. That's because on our analysis the CEO, Mohit Agrawal, is paid less than the median for similar sized companies. For companies with market capitalizations under ₹15b, like Texmo Pipes and Products, the median CEO pay is around ₹3.0m.

The CEO of Texmo Pipes and Products was paid just ₹1.6m in total compensation for the year ending . This could be considered a token amount, and indicates that the company does not need to use payment to motivate the CEO - that is often a good sign. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.

Should You Add Texmo Pipes and Products To Your Watchlist?

Texmo Pipes and Products's earnings have taken off like any random crypto-currency did, back in 2017. Just as heartening; insiders both own and are buying more stock. Because of the potential that it has reached an inflection point, I'd suggest Texmo Pipes and Products belongs on the top of your watchlist. What about risks? Every company has them, and we've spotted 2 warning signs for Texmo Pipes and Products you should know about.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Texmo Pipes and Products, you'll probably love this free list of growing companies that insiders are buying.

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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