Is Now The Time To Put Ipca Laboratories (NSE:IPCALAB) On Your Watchlist?

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. 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.

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). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. 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.

See our latest analysis for Ipca Laboratories

Ipca Laboratories's Earnings Per Share Are Growing.

As one of my mentors once told me, share price follows earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. I, for one, am blown away by the fact that Ipca Laboratories has grown EPS by 51% per year, over the last three years. Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.

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. While we note Ipca Laboratories's EBIT margins were flat over the last year, revenue grew by a solid 8.8% to ₹55b. That's a real positive.

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.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Ipca Laboratories's forecast profits?

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. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

We do note that, in the last year, insiders sold -₹77m worth of shares. But that's far less than the ₹265m 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. We also note that it was the Chairman, Premchand Godha, who made the biggest single acquisition, paying ₹216m for shares at about ₹955 each.

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 ₹24b. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!

Is Ipca Laboratories Worth Keeping An Eye On?

Ipca Laboratories's earnings have taken off like any random crypto-currency did, back in 2017. What's more insiders own a significant stake in the company and have been buying more shares. Because of the potential that it has reached an inflection point, I'd suggest Ipca Laboratories belongs on the top of your watchlist. What about risks? Every company has them, and we've spotted 1 warning sign for Ipca Laboratories you should know about.

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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