Here's Why We Think Beta Drugs (NSE:BETA) Is Well Worth Watching

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

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

How Quickly Is Beta Drugs 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) outcomes. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Impressively, Beta Drugs has grown EPS by 30% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

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. Beta Drugs shareholders can take confidence from the fact that EBIT margins are up from 14% to 18%, and revenue is growing. 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. To see the actual numbers, click on the chart.

Since Beta Drugs is no giant, with a market capitalisation of ₹7.5b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Beta Drugs Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. Because often, 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 Beta Drugs shareholders is that no insiders reported selling shares in the last year. So it's definitely nice that Chairman & MD Rahul Batra bought ₹1.7m worth of shares at an average price of around ₹598. It seems that at least one insider is prepared to show the market there is potential within Beta Drugs.

The good news, alongside the insider buying, for Beta Drugs bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have ₹1.3b worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 17% of the company, demonstrating a degree of high-level alignment with shareholders.

Should You Add Beta Drugs To Your Watchlist?

You can't deny that Beta Drugs has grown its earnings per share at a very impressive rate. That's attractive. Better still, insiders own a large chunk of the company and one has even been buying more shares. These things considered, this is one stock worth watching. What about risks? Every company has them, and we've spotted 4 warning signs for Beta Drugs you should know about.

The good news is that Beta Drugs 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.

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.