Should You Be Adding Sun Pharmaceutical Industries (NSE:SUNPHARMA) To Your Watchlist Today?

By
Simply Wall St
Published
January 19, 2022
NSEI:SUNPHARMA
Source: Shutterstock

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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

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

Check out our latest analysis for Sun Pharmaceutical Industries

Sun Pharmaceutical Industries's Earnings Per Share Are 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. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Impressively, Sun Pharmaceutical Industries has grown EPS by 37% 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 Sun Pharmaceutical Industries is growing revenues, and EBIT margins improved by 4.9 percentage points to 21%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

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.

earnings-and-revenue-history
NSEI:SUNPHARMA Earnings and Revenue History January 19th 2022

While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Sun Pharmaceutical Industries?

Are Sun Pharmaceutical Industries Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a ₹2.0t company like Sun Pharmaceutical Industries. But we do take comfort from the fact that they are investors in the company. Notably, they have an enormous stake in the company, worth ₹246b. 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.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, I'd say they are indeed. For companies with market capitalizations over ₹594b, like Sun Pharmaceutical Industries, the median CEO pay is around ₹91m.

Sun Pharmaceutical Industries offered total compensation worth ₹46m to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. 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 a culture of integrity, in a broader sense.

Is Sun Pharmaceutical Industries Worth Keeping An Eye On?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Sun Pharmaceutical Industries's strong EPS growth. If that's not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. This may only be a fast rundown, but the takeaway for me is that Sun Pharmaceutical Industries is worth keeping an eye on. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for Sun Pharmaceutical Industries that you should be aware of.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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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