It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In contrast to all that, I prefer to spend time on companies like Saksoft (NSE:SAKSOFT), which has not only revenues, but also profits. Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
Check out our latest analysis for Saksoft
Saksoft's Earnings Per Share Are Growing.
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. As a tree reaches steadily for the sky, Saksoft's EPS has grown 27% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Saksoft maintained stable EBIT margins over the last year, all while growing revenue 6.0% to ₹3.8b. That's progress.
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 Saksoft is no giant, with a market capitalization of ₹3.4b, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Saksoft Insiders Aligned With All Shareholders?
It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. As a result, I'm encouraged by the fact that insiders own Saksoft shares worth a considerable sum. To be specific, they have ₹957m worth of shares. That's a lot of money, and no small incentive to work hard. That amounts to 28% of the company, demonstrating a degree of high-level alignment with shareholders.
Is Saksoft Worth Keeping An Eye On?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Saksoft's strong EPS growth. I think that EPS growth is something to boast of, and it doesn't surprise me that insiders are holding on to a considerable chunk of shares. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. We should say that we've discovered 1 warning sign for Saksoft that you should be aware of before investing here.
Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like 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. 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.
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About NSEI:SAKSOFT
Saksoft
An information technology company, provides digital transformation solutions in Europe, the United States, the Asia Pacific, and internationally.
Flawless balance sheet established dividend payer.
