Should You Be Adding Zen Technologies (NSE:ZENTEC) 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. 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.

In contrast to all that, many investors prefer to focus on companies like Zen Technologies (NSE:ZENTEC), 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 Zen Technologies

How Quickly Is Zen Technologies Increasing Earnings Per Share?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That means EPS growth is considered a real positive by most successful long-term investors. Impressively, Zen Technologies has grown EPS by 22% per year, compound, in the last three years. So it's not surprising to see the company trades on a very high multiple of (past) earnings.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Zen Technologies shareholders can take confidence from the fact that EBIT margins are up from 12% to 40%, and revenue is growing. Ticking those two boxes is a good sign of growth, in our book.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Zen Technologies' balance sheet strength, before getting too excited.

Are Zen Technologies 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 those who are interested in Zen Technologies will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. In fact, they own 59% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. at the current share price. This is an incredible endorsement from them.

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. A brief analysis of the CEO compensation suggests they are. The median total compensation for CEOs of companies similar in size to Zen Technologies, with market caps between ₹33b and ₹133b, is around ₹33m.

Zen Technologies offered total compensation worth ₹18m to its CEO in the year to March 2023. That seems pretty reasonable, especially given it's below the median for similar 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 Zen Technologies Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Zen Technologies' strong EPS growth. If that's not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. This may only be a fast rundown, but the key takeaway is that Zen Technologies is worth keeping an eye on. What about risks? Every company has them, and we've spotted 3 warning signs for Zen Technologies (of which 2 don't sit too well with us!) you should know about.

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.