With EPS Growth And More, Touchwood Entertainment (NSE:TOUCHWOOD) Makes An Interesting Case

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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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 Touchwood Entertainment (NSE:TOUCHWOOD). 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 our latest analysis for Touchwood Entertainment

How Quickly Is Touchwood Entertainment Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Touchwood Entertainment managed to grow EPS by 5.8% per year, over three years. This may not be setting the world alight, but it does show that EPS is on the upwards trend.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note Touchwood Entertainment achieved similar EBIT margins to last year, revenue grew by a solid 7.3% to ₹230m. That's progress.

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

Since Touchwood Entertainment is no giant, with a market capitalisation of ₹1.2b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Touchwood Entertainment 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 Touchwood Entertainment insiders own a meaningful share of the business. In fact, they own 82% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. Although, with Touchwood Entertainment being valued at ₹1.2b, this is a small company we're talking about. So this large proportion of shares owned by insiders only amounts to ₹990m. This isn't an overly large holding but it should still keep the insiders motivated to deliver the best outcomes for shareholders.

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. Well, based on the CEO pay, you'd argue that they are indeed. The median total compensation for CEOs of companies similar in size to Touchwood Entertainment, with market caps under ₹16b is around ₹3.6m.

The CEO of Touchwood Entertainment was paid just ₹3.0m in total compensation for the year ending March 2022. You could consider this pay as somewhat symbolic, which suggests the CEO does not need a lot of compensation to stay motivated. 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. It can also be a sign of a culture of integrity, in a broader sense.

Is Touchwood Entertainment Worth Keeping An Eye On?

One important encouraging feature of Touchwood Entertainment is that it is growing profits. Earnings growth might be the main attraction for Touchwood Entertainment, but the fun does not stop there. With company insiders aligning themselves considerably with the company's success and modest CEO compensation, there's no arguments that this is a stock worth looking into. Before you take the next step you should know about the 3 warning signs for Touchwood Entertainment (1 is concerning!) that we have uncovered.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you 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.

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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.