Should You Be Adding Innovana Thinklabs (NSE:INNOVANA) To Your Watchlist Today?

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. 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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

In contrast to all that, many investors prefer to focus on companies like Innovana Thinklabs (NSE:INNOVANA), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

Check out our latest analysis for Innovana Thinklabs

How Quickly Is Innovana Thinklabs Increasing Earnings Per Share?

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. Shareholders will be happy to know that Innovana Thinklabs' EPS has grown 18% each year, compound, over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

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. Innovana Thinklabs shareholders can take confidence from the fact that EBIT margins are up from 33% to 40%, 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.

Since Innovana Thinklabs is no giant, with a market capitalisation of ₹15b, you should definitely check its cash and debt before getting too excited about its prospects.

Are Innovana Thinklabs Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

We haven't seen any insiders selling Innovana Thinklabs shares, in the last year. Add in the fact that Chandan Garg, the Chairman & MD of the company, paid ₹2.9m for shares at around ₹601 each. It seems that at least one insider is prepared to show the market there is potential within Innovana Thinklabs.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Innovana Thinklabs insiders own more than a third of the company. To be exact, company insiders hold 73% of the company, so their decisions have a significant impact on their investments. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. In terms of absolute value, insiders have ₹11b invested in the business, at the current share price. That's nothing to sneeze at!

Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. The cherry on top is that the CEO, Chandan Garg is paid comparatively modestly to CEOs at similar sized companies. The median total compensation for CEOs of companies similar in size to Innovana Thinklabs, with market caps between ₹8.3b and ₹33b, is around ₹17m.

Innovana Thinklabs offered total compensation worth ₹12m to its CEO in the year to March 2022. That is actually below the median for CEO's of similarly sized companies. 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 Innovana Thinklabs Deserve A Spot On Your Watchlist?

You can't deny that Innovana Thinklabs has grown its earnings per share at a very impressive rate. That's attractive. Better still, insiders own a large chunk of the company and one has even been buying more shares. So it's fair to say that this stock may well deserve a spot on your watchlist. You should always think about risks though. Case in point, we've spotted 1 warning sign for Innovana Thinklabs you should be aware of.

The good news is that Innovana Thinklabs is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!

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.