It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
In contrast to all that, I prefer to spend time on companies like D. P. Abhushan (NSE:DPABHUSHAN), which has not only revenues, but also profits. 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. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
How Quickly Is D. P. Abhushan Increasing Earnings Per Share?
As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. I, for one, am blown away by the fact that D. P. Abhushan has grown EPS by 51% per year, over the last three years. Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.
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 maintained stable EBIT margins over the last year, all while growing revenue 118% to ₹19b. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
Since D. P. Abhushan is no giant, with a market capitalization of ₹9.2b, 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 standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
In twelve months, insiders sold -₹987k worth of D. P. Abhushan shares. On the other hand, Non-Executive Independent Director Deepak Gadia paid ₹2.4m for shares, at a price of about ₹293 per share. So, on balance, that's positive.
On top of the insider buying, we can also see that D. P. Abhushan insiders own a large chunk of the company. In fact, they own 79% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes me think they will be incentivised to plan for the long term - something I like to see. With that sort of holding, insiders have about ₹7.3b riding on the stock, at current prices. That's nothing to sneeze at!
Does D. P. Abhushan Deserve A Spot On Your Watchlist?
D. P. Abhushan's earnings per share have taken off like a rocket aimed right at the moon. The cherry on top is that insiders own a bunch of shares, and one has been buying more. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe D. P. Abhushan deserves timely attention. We don't want to rain on the parade too much, but we did also find 1 warning sign for D. P. Abhushan that you need to be mindful 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. 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.