If You Like EPS Growth Then Check Out Lincoln Pharmaceuticals (NSE:LINCOLN) Before It's Too Late

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Lincoln Pharmaceuticals (NSE:LINCOLN). 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. 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.

View our latest analysis for Lincoln Pharmaceuticals

How Fast Is Lincoln Pharmaceuticals Growing?

As one of my mentors once told me, share price follows earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. Lincoln Pharmaceuticals managed to grow EPS by 15% per year, over three years. That's a pretty good rate, if the company can sustain it.

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). Lincoln Pharmaceuticals maintained stable EBIT margins over the last year, all while growing revenue 6.2% to ₹4.5b. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

Since Lincoln Pharmaceuticals is no giant, with a market capitalization of ₹6.3b, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Lincoln Pharmaceuticals Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. 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.

Although we did see some insider selling (worth -₹6.7m) this was overshadowed by a mountain of buying, totalling ₹295m in just one year. I find this encouraging because it suggests they are optimistic about the Lincoln Pharmaceuticals's future. Zooming in, we can see that the biggest insider purchase was by Whole Time Director Munjal Patel for ₹27m worth of shares, at about ₹364 per share.

On top of the insider buying, we can also see that Lincoln Pharmaceuticals insiders own a large chunk of the company. Indeed, with a collective holding of 51%, company insiders are in control and have plenty of capital behind the venture. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. With that sort of holding, insiders have about ₹3.2b riding on the stock, at current prices. That's nothing to sneeze at!

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. That's because on our analysis the CEO, Mahendrabhai Patel, is paid less than the median for similar sized companies. For companies with market capitalizations under ₹15b, like Lincoln Pharmaceuticals, the median CEO pay is around ₹3.0m.

The CEO of Lincoln Pharmaceuticals was paid just ₹2.5m in total compensation for the year ending . This could be considered a token amount, and indicates that the company does not need to use payment to motivate the CEO - that is often a good sign. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of good governance, more generally.

Does Lincoln Pharmaceuticals Deserve A Spot On Your Watchlist?

As I already mentioned, Lincoln Pharmaceuticals is a growing business, which is what I like to see. On top of that, we've seen insiders buying shares even though they already own plenty. That makes the company a prime candidate for my watchlist - and arguably a research priority. What about risks? Every company has them, and we've spotted 1 warning sign for Lincoln Pharmaceuticals you should know about.

The good news is that Lincoln Pharmaceuticals is not the only growth stock with insider buying. Here's 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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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.