Should You Be Adding Lincoln Pharmaceuticals (NSE:LINCOLN) To Your Watchlist Today?

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Lincoln Pharmaceuticals (NSE:LINCOLN). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. 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.

Check out our latest analysis for Lincoln Pharmaceuticals

Lincoln Pharmaceuticals's Earnings Per Share Are Growing.

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. It's no surprise, then, that I like to invest in companies with EPS growth. Over the last three years, Lincoln Pharmaceuticals has grown EPS by 12% per year. That growth rate is fairly good, assuming the company can keep it up.

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. The good news is that Lincoln Pharmaceuticals is growing revenues, and EBIT margins improved by 3.1 percentage points to 19%, over the last year. That's great to see, on both counts.

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 capitalization of ₹6.4b. That makes it extra important to check on its balance sheet strength.

Are Lincoln Pharmaceuticals 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.

Although we did see some insider selling (worth -₹26m) this was overshadowed by a mountain of buying, totalling ₹189m 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 ₹30m worth of shares, at about ₹218 per share.

On top of the insider buying, we can also see that Lincoln Pharmaceuticals insiders own a large chunk of the company. Actually, with 49% of the company to their names, insiders are profoundly invested in the business. I'm always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. In terms of absolute value, insiders have ₹3.2b invested in the business, using the current share price. That should be more than enough to keep them focussed on creating shareholder value!

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. The cherry on top is that the CEO, Mahendrabhai Patel is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations under ₹15b, like Lincoln Pharmaceuticals, the median CEO pay is around ₹2.9m.

The CEO of Lincoln Pharmaceuticals was paid just ₹2.3m 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 compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. 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. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. It is worth noting though that we have found 2 warning signs for Lincoln Pharmaceuticals that you need to take into consideration.

As a growth investor I do like to see insider buying. But Lincoln Pharmaceuticals 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. 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.
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