Is Now The Time To Put Sun Pharmaceutical Industries (NSE:SUNPHARMA) On Your Watchlist?

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 currently lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Sun Pharmaceutical Industries (NSE:SUNPHARMA). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

Check out our latest analysis for Sun Pharmaceutical Industries

How Fast Is Sun Pharmaceutical Industries Growing Its Earnings Per Share?

In the last three years Sun Pharmaceutical Industries' earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. As a result, we'll zoom in on growth over the last year, instead. In impressive fashion, Sun Pharmaceutical Industries' EPS grew from ₹16.18 to ₹35.16, over the previous 12 months. It's not often a company can achieve year-on-year growth of 117%.

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. Sun Pharmaceutical Industries maintained stable EBIT margins over the last year, all while growing revenue 14% to ₹451b. That's encouraging news for the company!

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Sun Pharmaceutical Industries.

Are Sun Pharmaceutical Industries Insiders Aligned With All Shareholders?

Since Sun Pharmaceutical Industries has a market capitalisation of ₹2.8t, we wouldn't expect insiders to hold a large percentage of shares. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. We note that their impressive stake in the company is worth ₹336b. Coming in at 12% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. Very encouraging.

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. Our quick analysis into CEO remuneration would seem to indicate they are. For companies with market capitalisations over ₹666b, like Sun Pharmaceutical Industries, the median CEO pay is around ₹96m.

Sun Pharmaceutical Industries offered total compensation worth ₹55m to its CEO in the year to March 2023. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Does Sun Pharmaceutical Industries Deserve A Spot On Your Watchlist?

Sun Pharmaceutical Industries' earnings per share growth have been climbing higher at an appreciable rate. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The drastic earnings growth indicates the business is going from strength to strength. Hopefully a trend that continues well into the future. Sun Pharmaceutical Industries certainly ticks a few boxes, so we think it's probably well worth further consideration. We don't want to rain on the parade too much, but we did also find 1 warning sign for Sun Pharmaceutical Industries that you need to be mindful of.

Although Sun Pharmaceutical Industries certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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.