Do Saregama India's (NSE:SAREGAMA) Earnings Warrant Your Attention?

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

So if you're like me, you might be more interested in profitable, growing companies, like Saregama India (NSE:SAREGAMA). 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.

View our latest analysis for Saregama India

Saregama India's Earnings Per Share Are 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). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. I, for one, am blown away by the fact that Saregama India has grown EPS by 53% per year, over the last three years. That sort of growth never lasts long, but like a shooting star it is well worth watching when it happens.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. This approach makes Saregama India look pretty good, on balance; although revenue is flattish, EBIT margins improved from 16% to 30% in the last year. That's a real positive.

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 Saregama India's balance sheet strength, before getting too excited.

Are Saregama India Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. 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.

Despite -₹26m worth of sales, Saregama India insiders have overwhelmingly been buying the stock, spending ₹60m on purchases in the last twelve months. On balance, to me, this signals their optimism. It is also worth noting that it was MD & Executive Director Vikram Mehra who made the biggest single purchase, worth ₹34m, paying ₹171 per share.

The good news, alongside the insider buying, for Saregama India bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have ₹2.7b worth of shares. That's a lot of money, and no small incentive to work hard. Even though that's only about 4.2% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Does Saregama India Deserve A Spot On Your Watchlist?

Saregama India's earnings have taken off like any random crypto-currency did, back in 2017. What's more insiders own a significant stake in the company and have been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Saregama India deserves timely attention. Still, you should learn about the 2 warning signs we've spotted with Saregama India .

As a growth investor I do like to see insider buying. But Saregama India 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.
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