Here's Why We Think Granules India (NSE:GRANULES) Is Well Worth Watching

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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Granules India (NSE:GRANULES). 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.

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Granules India's Improving Profits

Even when EPS earnings per share (EPS) growth is unexceptional, company value can be created if this rate is sustained each year. So it's no surprise that some investors are more inclined to invest in profitable businesses. Granules India has grown its trailing twelve month EPS from ₹20.10 to ₹21.13, in the last year. That amounts to a small improvement of 5.2%.

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. Granules India maintained stable EBIT margins over the last year, all while growing revenue 8.1% to ₹48b. That's encouraging news for the company!

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

See our latest analysis for Granules India

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Granules India's future profits.

Are Granules India Insiders Aligned With All Shareholders?

Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price. So those who are interested in Granules India will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. Actually, with 40% of the company to their names, insiders are profoundly invested in the business. Shareholders and speculators should be reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. And their holding is extremely valuable at the current share price, totalling ₹55b. This is an incredible endorsement from them.

Should You Add Granules India To Your Watchlist?

One important encouraging feature of Granules India is that it is growing profits. If that's not enough on its own, there is also the rather notable levels of insider ownership. That combination is very appealing. So yes, we do think the stock is worth keeping an eye on. Of course, just because Granules India is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Although Granules India certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of Indian companies that not only boast of strong growth but have strong insider backing.

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.