Here's Why DRC Systems India (NSE:DRCSYSTEMS) Has Caught The Eye Of Investors

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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 DRC Systems India (NSE:DRCSYSTEMS). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide DRC Systems India with the means to add long-term value to shareholders.

View our latest analysis for DRC Systems India

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

In the last three years DRC Systems India's 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. Thus, it makes sense to focus on more recent growth rates, instead. DRC Systems India's EPS skyrocketed from ₹0.50 to ₹0.67, in just one year; a result that's bound to bring a smile to shareholders. That's a impressive gain of 35%.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. While DRC Systems India did well to grow revenue over the last year, EBIT margins were dampened at the same time. So if EBIT margins can stabilize, this top-line growth should pay off for shareholders.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

DRC Systems India isn't a huge company, given its market capitalisation of ₹2.7b. That makes it extra important to check on its balance sheet strength.

Are DRC Systems India 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 as you can imagine, the fact that DRC Systems India insiders own a significant number of shares certainly is appealing. Owning 39% of the company, insiders have plenty riding on the performance of the the share price. Those who are comforted by solid insider ownership like this should be happy, as it implies that those running the business are genuinely motivated to create shareholder value. Of course, DRC Systems India is a very small company, with a market cap of only ₹2.7b. So despite a large proportional holding, insiders only have ₹1.0b worth of stock. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

Does DRC Systems India Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into DRC Systems India's strong EPS growth. With EPS growth rates like that, it's hardly surprising to see company higher-ups place confidence in the company through continuing to hold a significant investment. On the balance of its merits, solid EPS growth and company insiders who are aligned with the shareholders would indicate a business that is worthy of further research. Even so, be aware that DRC Systems India is showing 3 warning signs in our investment analysis , you should know about...

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in IN with promising growth potential and insider confidence.

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.