We Ran A Stock Scan For Earnings Growth And Megasoft (NSE:MEGASOFT) Passed With Ease

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. 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. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

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 Megasoft (NSE:MEGASOFT). 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 Megasoft

Megasoft's Improving Profits

In the last three years Megasoft'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. So it would be better to isolate the growth rate over the last year for our analysis. To the delight of shareholders, Megasoft's EPS soared from ₹0.42 to ₹0.63, over the last year. That's a commendable gain of 50%.

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. The previous 12 months are something that Megasoft will want to put behind them after seeing a drop in EBIT margin and revenue for the period. This is less than stellar for the company.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

Megasoft isn't a huge company, given its market capitalisation of ₹3.4b. That makes it extra important to check on its balance sheet strength.

Are Megasoft Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Megasoft insiders have a significant amount of capital invested in the stock. As a matter of fact, their holding is valued at ₹982m. That shows significant buy-in, and may indicate conviction in the business strategy. As a percentage, this totals to 29% of the shares on issue for the business, an appreciable amount considering the market cap.

Does Megasoft Deserve A Spot On Your Watchlist?

For growth investors, Megasoft's raw rate of earnings growth is a beacon in the night. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in Megasoft's continuing strength. 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. You should always think about risks though. Case in point, we've spotted 3 warning signs for Megasoft you should be aware of, and 1 of them is a bit concerning.

Although Megasoft certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.