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

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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Sun Pharmaceutical Industries (NSE:SUNPHARMA). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Sun Pharmaceutical Industries with the means to add long-term value to shareholders.

See our latest analysis for Sun Pharmaceutical Industries

How Quickly Is Sun Pharmaceutical Industries Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. That makes EPS growth an attractive quality for any company. It certainly is nice to see that Sun Pharmaceutical Industries has managed to grow EPS by 31% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. While we note Sun Pharmaceutical Industries achieved similar EBIT margins to last year, revenue grew by a solid 14% to ₹439b. That's progress.

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.

Fortunately, we've got access to analyst forecasts of Sun Pharmaceutical Industries' future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Sun Pharmaceutical Industries Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a ₹2.5t company like Sun Pharmaceutical Industries. But we are reassured by the fact they have invested in the company. We note that their impressive stake in the company is worth ₹305b. That equates to 12% of the company, making insiders powerful and aligned with other shareholders. So there is opportunity here to invest in a company whose management have tangible incentives to deliver.

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. Well, based on the CEO pay, you'd argue that they are indeed. Our analysis has discovered that the median total compensation for the CEOs of companies like Sun Pharmaceutical Industries, with market caps over ₹657b, is about ₹106m.

The Sun Pharmaceutical Industries CEO received total compensation of just ₹51m in the year to March 2022. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.

Does Sun Pharmaceutical Industries Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Sun Pharmaceutical Industries' strong EPS growth. If you still have your doubts, remember too that company insiders have a considerable investment aligning themselves with the shareholders and CEO pay is quite modest compared to similarly sized companiess. Everyone has their own preferences when it comes to investing but it definitely makes Sun Pharmaceutical Industries look rather interesting indeed. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Sun Pharmaceutical Industries , and understanding this should be part of your investment process.

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.