With EPS Growth And More, Allied Digital Services (NSE:ADSL) Makes An Interesting Case

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Allied Digital Services (NSE:ADSL). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Allied Digital Services with the means to add long-term value to shareholders.

Check out our latest analysis for Allied Digital Services

How Fast Is Allied Digital Services Growing Its Earnings Per Share?

In the last three years Allied Digital Services' 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. As a result, we'll zoom in on growth over the last year, instead. In impressive fashion, Allied Digital Services' EPS grew from ₹3.83 to ₹11.26, over the previous 12 months. It's a rarity to see 194% year-on-year growth like that. Shareholders will be hopeful that this is a sign of the company reaching an inflection point.

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. The good news is that Allied Digital Services is growing revenues, and EBIT margins improved by 3.8 percentage points to 10%, over the last year. 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. To see the actual numbers, click on the chart.

Allied Digital Services isn't a huge company, given its market capitalisation of ₹7.4b. That makes it extra important to check on its balance sheet strength.

Are Allied Digital Services Insiders Aligned With All Shareholders?

Theory would suggest that it's an encouraging sign to see high insider ownership of a company, since it ties company performance directly to the financial success of its management. So we're pleased to report that Allied Digital Services insiders own a meaningful share of the business. To be exact, company insiders hold 60% of the company, so their decisions have a significant impact on their investments. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. In terms of absolute value, insiders have ₹4.4b invested in the business, at the current share price. That should be more than enough to keep them focussed on creating shareholder value!

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. For companies with market capitalisations under ₹16b, like Allied Digital Services, the median CEO pay is around ₹3.0m.

The Allied Digital Services CEO received total compensation of only ₹1.2m in the year to March 2022. 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.

Is Allied Digital Services Worth Keeping An Eye On?

Allied Digital Services' earnings have taken off in quite an impressive fashion. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The strong EPS improvement suggests the businesses is humming along. Big growth can make big winners, so the writing on the wall tells us that Allied Digital Services is worth considering carefully. You should always think about risks though. Case in point, we've spotted 5 warning signs for Allied Digital Services you should be aware of, and 1 of them can't be ignored.

Although Allied Digital Services 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.