Here's Why We Think Saregama India (NSE:SAREGAMA) Is Well Worth Watching

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

So if you're like me, you might be more interested in profitable, growing companies, like Saregama India (NSE:SAREGAMA). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. 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 Saregama India

How Quickly Is Saregama India 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 means EPS growth is considered a real positive by most successful long-term investors. I, for one, am blown away by the fact that Saregama India has grown EPS by 58% 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.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Unfortunately, Saregama India's revenue dropped 21% last year, but the silver lining is that EBIT margins improved from 9.5% to 26%. That's not ideal.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

Since Saregama India is no giant, with a market capitalization of ₹16b, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Saregama India 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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

First things first; I didn't see insiders sell Saregama India shares in the last year. But the really good news is that MD & Executive Director Vikram Mehra spent ₹34m buying stock stock, at an average price of around ₹171. Big buys like that give me a sense of opportunity; actions speak louder than words.

Is Saregama India Worth Keeping An Eye On?

Saregama India's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. Growth investors should find it difficult to look past that strong EPS move. And in fact, it could well signal a fundamental shift in the business economics. For me, this situation certainly piques my interest. Even so, be aware that Saregama India is showing 2 warning signs in our investment analysis , and 1 of those is significant...

The good news is that Saregama India is not the only growth stock with insider buying. Here's a list of them... 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.

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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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