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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. And in their study titled Who Falls Prey to the Wolf of Wall Street?’ Leuz et. al. found that it is ‘quite common’ for investors to lose money by buying into ‘pump and dump’ schemes.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Hester Biosciences (NSE:HESTERBIO). While that doesn’t make the shares worth buying at any price, you can’t deny that successful capitalism requires profit, eventually. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
How Fast Is Hester Biosciences Growing?
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Hester Biosciences has managed to grow EPS by 28% per year over three years. As a general rule, we’d say that if a company can keep up that sort of growth, shareholders will be smiling.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Not all of Hester Biosciences’s revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I’ve used might not be the best representation of the underlying business. The good news is that Hester Biosciences is growing revenues, and EBIT margins improved by 5.2 percentage points to 34%, over the last year. Ticking those two boxes is a good sign of growth, in my book.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
Since Hester Biosciences 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 Hester Biosciences 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. However, small purchases are not always indicative of conviction, and insiders don’t always get it right.
The good news for Hester Biosciences shareholders is that no insiders reported selling shares in the last year. So it’s definitely nice that Bhavna Shah bought ₹394k worth of shares at an average price of around ₹1,240.
On top of the insider buying, we can also see that Hester Biosciences insiders own a large chunk of the company. In fact, they own 61% 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. In terms of absolute value, insiders have ₹9.8b invested in the business, using the current share price. That should be more than enough to keep them focussed on creating shareholder value!
Is Hester Biosciences Worth Keeping An Eye On?
You can’t deny that Hester Biosciences has grown its earnings per share at a very impressive rate. That’s attractive. The cranberry sauce on the turkey is that insiders own a bunch of shares, and one has been buying more. So it’s fair to say I think this stock may well deserve a spot on your watchlist. While we’ve looked at the quality of the earnings, we haven’t yet done any work to value the stock. So if you like to buy cheap, you may want to check if Hester Biosciences is trading on a high P/E or a low P/E, relative to its industry.
The good news is that Hester Biosciences is not the only growth stock with insider buying. Here’s a 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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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.