Should You Be Adding Tirupati Forge (NSE:TIRUPATIFL) To Your Watchlist Today?

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Tirupati Forge (NSE:TIRUPATIFL). 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.

Check out the opportunities and risks within the IN Metals and Mining industry.

Tirupati Forge's Improving Profits

In business, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS) performance. So for many budding investors, improving EPS is considered a good sign. It is awe-striking that Tirupati Forge's EPS went from ₹0.14 to ₹1.16 in just one year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future. This could point to the business hitting a point of inflection.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. The music to the ears of Tirupati Forge shareholders is that EBIT margins have grown from 3.6% to 13% in the last 12 months and revenues are on an upwards trend as well. Ticking those two boxes is a good sign of growth, in our book.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

Since Tirupati Forge is no giant, with a market capitalisation of ₹2.2b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Tirupati Forge 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 those who are interested in Tirupati Forge will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. Indeed, with a collective holding of 59%, company insiders are in control and have plenty of capital behind the venture. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. In terms of absolute value, insiders have ₹1.3b invested in the business, at the current share price. That's nothing to sneeze at!

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Our quick analysis into CEO remuneration would seem to indicate they are. Our analysis has discovered that the median total compensation for the CEOs of companies like Tirupati Forge with market caps under ₹16b is about ₹3.6m.

The CEO of Tirupati Forge was paid just ₹1.8m in total compensation for the year ending March 2022. 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. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Does Tirupati Forge Deserve A Spot On Your Watchlist?

Tirupati Forge's earnings have taken off in quite an impressive fashion. An added bonus for those interested is that management hold a heap of stock and the CEO pay is quite reasonable, illustrating good cash management. The strong EPS improvement suggests the businesses is humming along. Tirupati Forge is certainly doing some things right and is well worth investigating. However, before you get too excited we've discovered 2 warning signs for Tirupati Forge that you should be aware of.

Although Tirupati Forge certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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

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

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.