Here's Why We Think V-Mart Retail (NSE:VMART) Is Well Worth Watching

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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like V-Mart Retail (NSE:VMART), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide V-Mart Retail with the means to add long-term value to shareholders.

See our latest analysis for V-Mart Retail

How Fast Is V-Mart Retail 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) outcomes. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Over the last three years, V-Mart Retail has grown EPS by 13% per year. That's a good rate of growth, if it can be sustained.

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. V-Mart Retail shareholders can take confidence from the fact that EBIT margins are up from 4.0% to 7.5%, and revenue is growing. That's great to see, on both counts.

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.

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are V-Mart Retail Insiders Aligned With All Shareholders?

It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. So it is good to see that V-Mart Retail insiders have a significant amount of capital invested in the stock. Holding ₹4.3b worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. At 8.2% of the company, the co-investment by insiders fosters confidence that management will make long-term focussed decisions.

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. Our quick analysis into CEO remuneration would seem to indicate they are. The median total compensation for CEOs of companies similar in size to V-Mart Retail, with market caps between ₹33b and ₹130b, is around ₹32m.

V-Mart Retail offered total compensation worth ₹18m to its CEO in the year to March 2022. That comes in below the average for similar sized companies and seems pretty reasonable. 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 V-Mart Retail To Your Watchlist?

One positive for V-Mart Retail is that it is growing EPS. That's nice to see. The growth of EPS may be the eye-catching headline for V-Mart Retail, but there's more to bring joy for shareholders. With company insiders aligning themselves considerably with the company's success and modest CEO compensation, there's no arguments that this is a stock worth looking into. It is worth noting though that we have found 2 warning signs for V-Mart Retail that you need to take into consideration.

Although V-Mart Retail 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.