We Ran A Stock Scan For Earnings Growth And Gretex Industries (NSE:GRETEX) Passed With Ease

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone 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 Gretex Industries (NSE:GRETEX). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Gretex Industries with the means to add long-term value to shareholders.

Check out our latest analysis for Gretex Industries

Gretex Industries' Improving Profits

Strong earnings per share (EPS) results are an indicator of a company achieving solid profits, which investors look upon favourably and so the share price tends to reflect great EPS performance. So for many budding investors, improving EPS is considered a good sign. It's an outstanding feat for Gretex Industries to have grown EPS from ₹1.53 to ₹23.62 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company. This could point to the business hitting a point of inflection.

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. EBIT margins for Gretex Industries remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 37% to ₹347m. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

Since Gretex Industries is no giant, with a market capitalisation of ₹624m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Gretex Industries Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

First and foremost; there we saw no insiders sell Gretex Industries shares in the last year. But the really good news is that Chief Financial Officer Pradeep Mertia spent ₹32m buying stock, at an average price of around ₹128. Purchases like this can offer an insight into the faith of the company's management - and it seems to be all positive.

These recent buys aren't the only encouraging sign for shareholders, as a look at the shareholder registry for Gretex Industries will reveal that insiders own a significant piece of the pie. Actually, with 36% of the company to their names, insiders are profoundly invested in the business. This should be a welcoming sign for investors because it suggests that the people making the decisions are also impacted by their choices. Of course, Gretex Industries is a very small company, with a market cap of only ₹624m. So despite a large proportional holding, insiders only have ₹226m 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.

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Arvind Harlalka, is paid less than the median for similar sized companies. The median total compensation for CEOs of companies similar in size to Gretex Industries, with market caps under ₹17b is around ₹3.2m.

The Gretex Industries CEO received total compensation of only ₹1.1m in the year to March 2024. You could consider this pay as somewhat symbolic, which suggests the CEO does not need a lot of compensation to stay motivated. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.

Does Gretex Industries Deserve A Spot On Your Watchlist?

Gretex Industries' earnings per share growth have been climbing higher at an appreciable rate. The icing on the cake is that insiders own a large chunk of the company and one has even been buying more shares. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Gretex Industries belongs near the top of your watchlist. What about risks? Every company has them, and we've spotted 3 warning signs for Gretex Industries (of which 2 are a bit concerning!) you should know about.

The good news is that Gretex Industries is not the only stock with insider buying. Here's a list of small cap, undervalued companies in IN 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.