Do IOL Chemicals and Pharmaceuticals's (NSE:IOLCP) Earnings Warrant Your Attention?

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. 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.

So if you're like me, you might be more interested in profitable, growing companies, like IOL Chemicals and Pharmaceuticals (NSE:IOLCP). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

See our latest analysis for IOL Chemicals and Pharmaceuticals

How Fast Is IOL Chemicals and Pharmaceuticals Growing Its Earnings Per Share?

Over the last three years, IOL Chemicals and Pharmaceuticals has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. Thus, it makes sense to focus on more recent growth rates, instead. It's good to see that IOL Chemicals and Pharmaceuticals's EPS have grown from ₹65.67 to ₹79.41 over twelve months. I doubt many would complain about that 21% gain.

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. IOL Chemicals and Pharmaceuticals maintained stable EBIT margins over the last year, all while growing revenue 3.9% to ₹19b. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are IOL Chemicals and Pharmaceuticals Insiders Aligned With All Shareholders?

It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. As a result, I'm encouraged by the fact that insiders own IOL Chemicals and Pharmaceuticals shares worth a considerable sum. Indeed, they hold ₹1.6b worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 4.5% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Should You Add IOL Chemicals and Pharmaceuticals To Your Watchlist?

One important encouraging feature of IOL Chemicals and Pharmaceuticals is that it is growing profits. If that's not enough on its own, there is also the rather notable levels of insider ownership. The combination sparks joy for me, so I'd consider keeping the company on a watchlist. It is worth noting though that we have found 3 warning signs for IOL Chemicals and Pharmaceuticals that you need to take into consideration.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like 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.

If you decide to trade IOL Chemicals and Pharmaceuticals, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.