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 Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
So if you're like me, you might be more interested in profitable, growing companies, like Solara Active Pharma Sciences (NSE:SOLARA). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
Solara Active Pharma Sciences's Improving Profits
Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So EPS growth can certainly encourage an investor to take note of a stock. It's good to see that Solara Active Pharma Sciences's EPS have grown from ₹54.46 to ₹61.57 over twelve months. I doubt many would complain about that 13% gain.
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. Solara Active Pharma Sciences shareholders can take confidence from the fact that EBIT margins are up from 13% to 16%, and revenue is growing. That's great to see, on both counts.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Solara Active Pharma Sciences's future profits.
Are Solara Active Pharma Sciences Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Despite -₹2.0m worth of sales, Solara Active Pharma Sciences insiders have overwhelmingly been buying the stock, spending ₹37m on purchases in the last twelve months. You could argue that level of buying implies genuine confidence in the business. It is also worth noting that it was Chaitanya Vaidya who made the biggest single purchase, worth ₹5.1m, paying ₹641 per share.
The good news, alongside the insider buying, for Solara Active Pharma Sciences bulls is that insiders (collectively) have a meaningful investment in the stock. Notably, they have an enormous stake in the company, worth ₹8.3b. Coming in at 17% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. So it might be my imagination, but I do sense the glimmer of an opportunity.
Should You Add Solara Active Pharma Sciences To Your Watchlist?
One positive for Solara Active Pharma Sciences is that it is growing EPS. That's nice 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. Don't forget that there may still be risks. For instance, we've identified 3 warning signs for Solara Active Pharma Sciences that you should be aware of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Solara Active Pharma Sciences, you'll probably love this free list of growing companies that insiders are buying.
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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