Here's Why I Think D. P. Abhushan (NSE:DPABHUSHAN) Might Deserve Your Attention Today

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like D. P. Abhushan (NSE:DPABHUSHAN). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for D. P. Abhushan

D. P. Abhushan's Earnings Per Share Are Growing.

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). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. As a tree reaches steadily for the sky, D. P. Abhushan's EPS has grown 35% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

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. D. P. Abhushan reported flat revenue and EBIT margins over the last year. That's not bad, but it doesn't point to ongoing future growth, either.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

Since D. P. Abhushan is no giant, with a market capitalization of ₹2.0b, so you should definitely check its cash and debt before getting too excited about its prospects.

Are D. P. Abhushan Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. 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.

Not only did D. P. Abhushan insiders refrain from selling stock during the year, but they also spent ₹12m buying it. That puts the company in a nice light, as it makes me think its leaders are feeling confident. It is also worth noting that it was Non Executive Director Renu Kataria who made the biggest single purchase, worth ₹4.8m, paying ₹59.90 per share.

On top of the insider buying, we can also see that D. P. Abhushan insiders own a large chunk of the company. Indeed, with a collective holding of 83%, company insiders are in control and have plenty of capital behind the venture. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. In terms of absolute value, insiders have ₹1.6b invested in the business, using the current share price. That should be more than enough to keep them focussed on creating shareholder value!

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. That's because on our analysis the CEO, Amit Bandi, is paid less than the median for similar sized companies. For companies with market capitalizations under ₹15b, like D. P. Abhushan, the median CEO pay is around ₹3.4m.

The D. P. Abhushan CEO received total compensation of only ₹1.8m in the year to . You could consider this pay as somewhat symbolic, which suggests the CEO does not need a lot of compensation to stay motivated. 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 good governance, more generally.

Should You Add D. P. Abhushan To Your Watchlist?

For growth investors like me, D. P. Abhushan's raw rate of earnings growth is a beacon in the night. Not only that, but we can see that insiders both own a lot of, and are buying more, shares in the company. So I do think this is one stock worth watching. However, before you get too excited we've discovered 3 warning signs for D. P. Abhushan (1 is a bit unpleasant!) that you should be aware of.

The good news is that D. P. Abhushan is not the only growth stock with insider buying. Here's a list of them... 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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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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