We Ran A Stock Scan For Earnings Growth And Vaishali Pharma (NSE:VAISHALI) Passed With Ease

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

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 Vaishali Pharma (NSE:VAISHALI). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

See our latest analysis for Vaishali Pharma

How Fast Is Vaishali Pharma Growing Its Earnings Per Share?

In the last three years Vaishali Pharma's 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. Thus, it makes sense to focus on more recent growth rates, instead. Vaishali Pharma's EPS shot up from ₹4.48 to ₹6.30; a result that's bound to keep shareholders happy. That's a commendable gain of 41%.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. It's noted that, last year, Vaishali Pharma's revenue from operations was lower than its revenue, so that could distort our analysis of its margins. Unfortunately, Vaishali Pharma's revenue dropped 6.2% last year, but the silver lining is that EBIT margins improved from 9.4% to 12%. That's not a good look.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

Vaishali Pharma isn't a huge company, given its market capitalisation of ₹1.3b. That makes it extra important to check on its balance sheet strength.

Are Vaishali Pharma Insiders Aligned With All Shareholders?

Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price. So those who are interested in Vaishali Pharma will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. In fact, they own 49% of the shares, making insiders a very influential shareholder group. Shareholders and speculators should be reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. Although, with Vaishali Pharma being valued at ₹1.3b, this is a small company we're talking about. So despite a large proportional holding, insiders only have ₹616m worth of stock. This isn't an overly large holding but it should still keep the insiders motivated to deliver the best outcomes for shareholders.

Should You Add Vaishali Pharma To Your Watchlist?

For growth investors, Vaishali Pharma's raw rate of earnings growth is a beacon in the night. With EPS growth rates like that, it's hardly surprising to see company higher-ups place confidence in the company through continuing to hold a significant investment. On the balance of its merits, solid EPS growth and company insiders who are aligned with the shareholders would indicate a business that is worthy of further research. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Vaishali Pharma , and understanding it should be part of your investment process.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a free list of them here.

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.