Do Lincoln Pharmaceuticals' (NSE:LINCOLN) Earnings Warrant Your Attention?

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone 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. 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.

In contrast to all that, many investors prefer to focus on companies like Lincoln Pharmaceuticals (NSE:LINCOLN), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Lincoln Pharmaceuticals with the means to add long-term value to shareholders.

View our latest analysis for Lincoln Pharmaceuticals

Lincoln Pharmaceuticals' Earnings Per Share Are Growing

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Over the last three years, Lincoln Pharmaceuticals has grown EPS by 15% per year. That's a good rate of growth, if it can be sustained.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Lincoln Pharmaceuticals maintained stable EBIT margins over the last year, all while growing revenue 13% to ₹5.9b. That's encouraging news for the company!

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.

Lincoln Pharmaceuticals isn't a huge company, given its market capitalisation of ₹15b. That makes it extra important to check on its balance sheet strength.

Are Lincoln Pharmaceuticals Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Even though some insiders sold down their holdings, their actions speak louder than words with ₹29m more invested than sold by people who know they company best. This overall confidence in the company at current the valuation signals their optimism. We also note that it was the Whole Time Director, Munjal Patel, who made the biggest single acquisition, paying ₹20m for shares at about ₹568 each.

These recent buys aren't the only encouraging sign for shareholders, as a look at the shareholder registry for Lincoln Pharmaceuticals will reveal that insiders own a significant piece of the pie. To be exact, company insiders hold 53% of the company, so their decisions have a significant impact on their investments. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. To give you an idea, the value of insiders' holdings in the business are valued at ₹8.1b at the current share price. So there's plenty there to keep them focused!

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. The cherry on top is that the CEO, Mahendrabhai Patel is paid comparatively modestly to CEOs at similar sized companies. The median total compensation for CEOs of companies similar in size to Lincoln Pharmaceuticals, with market caps between ₹8.4b and ₹34b, is around ₹14m.

The CEO of Lincoln Pharmaceuticals was paid just ₹3.3m in total compensation for the year ending March 2023. This total may indicate that the CEO is sacrificing take home pay for performance-based benefits, ensuring that their motivations are synonymous with strong company results. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.

Should You Add Lincoln Pharmaceuticals To Your Watchlist?

One positive for Lincoln Pharmaceuticals is that it is growing EPS. That's nice to see. Better yet, insiders are significant shareholders, and have been buying more shares. These factors alone make the company an interesting prospect for your watchlist, as well as continuing research. Of course, just because Lincoln Pharmaceuticals 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.

Keen growth investors love to see insider activity. Thankfully, Lincoln Pharmaceuticals isn't the only one. You can see a a curated list of Indian companies which have exhibited consistent growth accompanied by high insider ownership.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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

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.