Should You Be Adding Amrutanjan Health Care (NSE:AMRUTANJAN) To Your Watchlist Today?

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Amrutanjan Health Care (NSE:AMRUTANJAN). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. 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 Amrutanjan Health Care

How Quickly Is Amrutanjan Health Care 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. Who among us would not applaud Amrutanjan Health Care's stratospheric annual EPS growth of 53%, compound, 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. Amrutanjan Health Care shareholders can take confidence from the fact that EBIT margins are up from 13% to 23%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.

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.

Since Amrutanjan Health Care is no giant, with a market capitalization of ₹17b, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Amrutanjan Health Care Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

The good news for Amrutanjan Health Care shareholders is that no insiders reported selling shares in the last year. With that in mind, it's heartening that Govindan Raghavan, the Non-Executive Independent Director of the company, paid ₹1.1m for shares at around ₹521 each.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Amrutanjan Health Care insiders own more than a third of the company. In fact, they own 54% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes me think they will be incentivised to plan for the long term - something I like to see. With that sort of holding, insiders have about ₹8.9b riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. The cherry on top is that the CEO, Sambhu Sivalenka is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between ₹7.4b and ₹30b, like Amrutanjan Health Care, the median CEO pay is around ₹20m.

Amrutanjan Health Care offered total compensation worth ₹13m to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. 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. It can also be a sign of good governance, more generally.

Is Amrutanjan Health Care Worth Keeping An Eye On?

Amrutanjan Health Care's earnings per share have taken off like a rocket aimed right at the moon. The cherry on top is that insiders own a bunch of shares, and one has been buying more. Because of the potential that it has reached an inflection point, I'd suggest Amrutanjan Health Care belongs on the top of your watchlist. Now, you could try to make up your mind on Amrutanjan Health Care by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.

The good news is that Amrutanjan Health Care 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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