If EPS Growth Is Important To You, Sigma Solve (NSE:SIGMA) 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.

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 Sigma Solve (NSE:SIGMA). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

Our analysis indicates that SIGMA is potentially undervalued!

How Fast Is Sigma Solve Growing Its Earnings Per Share?

In the last three years Sigma Solve'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. Thus, it makes sense to focus on more recent growth rates, instead. In impressive fashion, Sigma Solve's EPS grew from ₹3.55 to ₹8.72, over the previous 12 months. It's a rarity to see 146% year-on-year growth like that. Shareholders will be hopeful that this is a sign of the company reaching an inflection point.

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. The good news is that Sigma Solve is growing revenues, and EBIT margins improved by 2.6 percentage points to 36%, over the last year. That's great to see, on both counts.

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

Since Sigma Solve 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 Sigma Solve Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So we're pleased to report that Sigma Solve insiders own a meaningful share of the business. 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 ₹1.8b invested in the business, at the current share price. That should be more than enough to keep them focussed on creating shareholder value!

Should You Add Sigma Solve To Your Watchlist?

Sigma Solve's earnings per share growth have been climbing higher at an appreciable rate. That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. So at the surface level, Sigma Solve is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. It is worth noting though that we have found 2 warning signs for Sigma Solve (1 is a bit concerning!) that you need to take into consideration.

The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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.