If EPS Growth Is Important To You, E2E Networks (NSE:E2E) Presents An Opportunity

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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like E2E Networks (NSE:E2E). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

See our latest analysis for E2E Networks

E2E Networks' Improving Profits

E2E Networks 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. So it would be better to isolate the growth rate over the last year for our analysis. Outstandingly, E2E Networks' EPS shot from ₹12.09 to ₹21.69, over the last year. It's not often a company can achieve year-on-year growth of 79%. Shareholders will be hopeful that this is a sign of the company reaching an inflection point.

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. E2E Networks shareholders can take confidence from the fact that EBIT margins are up from 30% to 36%, and revenue is growing. Both of which are great metrics to check off for potential growth.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

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

Are E2E Networks Insiders Aligned With All Shareholders?

As a general rule, it's worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. Our analysis has discovered that the median total compensation for the CEOs of companies like E2E Networks with market caps between ₹35b and ₹138b is about ₹31m.

The CEO of E2E Networks only received ₹11m in total compensation for the year ending March 2024. First impressions seem to indicate a compensation policy that is favourable to shareholders. 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 a culture of integrity, in a broader sense.

Does E2E Networks Deserve A Spot On Your Watchlist?

E2E Networks' earnings have taken off in quite an impressive fashion. Such fast EPS growth prompts the question: has the business reached an inflection point? At the same time the reasonable CEO compensation reflects well on the board of directors. So faced with these facts, it seems that researching this stock a little more may lead you to discover an investment opportunity that meets your quality standards. It's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with E2E Networks (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.

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.