Do Ipca Laboratories's (NSE:IPCALAB) 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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Ipca Laboratories (NSE:IPCALAB). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

Check out our latest analysis for Ipca Laboratories

Ipca Laboratories's Improving Profits

Over the last three years, Ipca Laboratories 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. As a result, I'll zoom in on growth over the last year, instead. Like a firecracker arcing through the night sky, Ipca Laboratories's EPS shot from ₹49.00 to ₹84.20, over the last year. Year on year growth of 72% is certainly a sight to behold.

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). The good news is that Ipca Laboratories is growing revenues, and EBIT margins improved by 7.9 percentage points to 24%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Ipca Laboratories EPS 100% free.

Are Ipca Laboratories 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

We do note that, in the last year, insiders sold -₹77m worth of shares. But that's far less than the ₹264m insiders spend purchasing stock. This makes me even more interested in Ipca Laboratories because it suggests that those who understand the company best, are optimistic. It is also worth noting that it was Chairman Premchand Godha who made the biggest single purchase, worth ₹216m, paying ₹955 per share.

Along with the insider buying, another encouraging sign for Ipca Laboratories is that insiders, as a group, have a considerable shareholding. Notably, they have an enormous stake in the company, worth ₹22b. I would find that kind of skin in the game quite encouraging, if I owned shares, since it would ensure that the leaders of the company would also experience my success, or failure, with the stock.

Should You Add Ipca Laboratories To Your Watchlist?

Ipca Laboratories's earnings per share have taken off like a rocket aimed right at the moon. What's more insiders own a significant stake in the company and have been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Ipca Laboratories deserves timely attention. Still, you should learn about the 1 warning sign we've spotted with Ipca Laboratories .

As a growth investor I do like to see insider buying. But Ipca Laboratories isn't the only one. You can see a a free list of them here.

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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