Here's Why We Think Par Drugs and Chemicals (NSE:PAR) Is Well Worth Watching

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. 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 contrast to all that, I prefer to spend time on companies like Par Drugs and Chemicals (NSE:PAR), which has not only revenues, but also profits. 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.

View our latest analysis for Par Drugs and Chemicals

How Fast Is Par Drugs and Chemicals Growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. It's no surprise, then, that I like to invest in companies with EPS growth. Impressively, Par Drugs and Chemicals has grown EPS by 29% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

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 Par Drugs and Chemicals is growing revenues, and EBIT margins improved by 10.3 percentage points to 19%, over the last year. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

Since Par Drugs and Chemicals is no giant, with a market capitalization of ₹1.4b, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Par Drugs and Chemicals Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

One positive for Par Drugs and Chemicals, is that company insiders paid ₹1.3m for shares in the last year. While this isn't much, we also note an absence of sales. Zooming in, we can see that the biggest insider purchase was by Chairman of the Board & MD Falgun Savani for ₹395k worth of shares, at about ₹32.92 per share.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Par Drugs and Chemicals insiders own more than a third of the company. Indeed, with a collective holding of 81%, company insiders are in control and have plenty of capital behind the venture. This makes me think they will be incentivised to plan for the long term - something I like to see. In terms of absolute value, insiders have ₹1.1b invested in the business, using the current share price. That's nothing to sneeze at!

Should You Add Par Drugs and Chemicals To Your Watchlist?

For growth investors like me, Par Drugs and Chemicals's raw rate of earnings growth is a beacon in the night. On top of that, insiders own a significant stake in the company and have been buying more shares. So it's fair to say I think this stock may well deserve a spot on your watchlist. Still, you should learn about the 4 warning signs we've spotted with Par Drugs and Chemicals .

As a growth investor I do like to see insider buying. But Par Drugs and Chemicals 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.

If you decide to trade Par Drugs and Chemicals, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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