Do DRC Systems India's (NSE:DRCSYSTEMS) Earnings Warrant Your Attention?

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and 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. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like DRC Systems India (NSE:DRCSYSTEMS). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

View our latest analysis for DRC Systems India

How Fast Is DRC Systems India Growing Its Earnings Per Share?

DRC Systems India has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. As a result, we'll zoom in on growth over the last year, instead. In impressive fashion, DRC Systems India's EPS grew from ₹0.56 to ₹1.09, over the previous 12 months. It's a rarity to see 94% 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 music to the ears of DRC Systems India shareholders is that EBIT margins have grown from 17% to 27% in the last 12 months and revenues are on an upwards trend as well. That's great to see, on both counts.

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

DRC Systems India isn't a huge company, given its market capitalisation of ₹3.6b. That makes it extra important to check on its balance sheet strength.

Are DRC Systems India Insiders Aligned With All Shareholders?

Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price. So we're pleased to report that DRC Systems India insiders own a meaningful share of the business. Actually, with 45% of the company to their names, insiders are profoundly invested in the business. Shareholders and speculators should be reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. To give you an idea, the value of insiders' holdings in the business are valued at ₹1.6b at the current share price. That should be more than enough to keep them focussed on creating shareholder value!

Does DRC Systems India Deserve A Spot On Your Watchlist?

DRC Systems India's earnings have taken off in quite an impressive fashion. That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. So at the surface level, DRC Systems India is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for DRC Systems India (1 makes us a bit uncomfortable) you should be aware of.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of Indian companies which have demonstrated growth backed by significant insider holdings.

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.