Do IRIS Business Services' (NSE:IRIS) Earnings Warrant Your Attention?

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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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 IRIS Business Services (NSE:IRIS). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

See our latest analysis for IRIS Business Services

IRIS Business Services' Improving Profits

Over the last three years, IRIS Business Services has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. As a result, we'll zoom in on growth over the last year, instead. IRIS Business Services' EPS skyrocketed from ₹1.41 to ₹2.35, in just one year; a result that's bound to bring a smile to shareholders. That's a commendable gain of 67%.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note IRIS Business Services achieved similar EBIT margins to last year, revenue grew by a solid 18% to ₹776m. That's encouraging news for the company!

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.

Since IRIS Business Services is no giant, with a market capitalisation of ₹2.4b, you should definitely check its cash and debt before getting too excited about its prospects.

Are IRIS Business 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 as you can imagine, the fact that IRIS Business Services insiders own a significant number of shares certainly is appealing. Owning 47% of the company, insiders have plenty riding on the performance of the the share price. Shareholders and speculators should be reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. Of course, IRIS Business Services is a very small company, with a market cap of only ₹2.4b. So despite a large proportional holding, insiders only have ₹1.1b worth of stock. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

Does IRIS Business Services Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into IRIS Business Services' strong EPS growth. This EPS growth rate is something the company should be proud of, and so it's no surprise that insiders are holding on to a considerable chunk of shares. The growth and insider confidence is looked upon well and so it's worthwhile to investigate further with a view to discern the stock's true value. It is worth noting though that we have found 2 warning signs for IRIS Business Services that you need to take into consideration.

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 free list of them here.

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.