Here's Why We Think Jaiprakash Power Ventures (NSE:JPPOWER) Is Well Worth Watching

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. 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. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

In contrast to all that, many investors prefer to focus on companies like Jaiprakash Power Ventures (NSE:JPPOWER), which has not only revenues, but also profits. 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 Jaiprakash Power Ventures

Jaiprakash Power Ventures' Improving Profits

In the last three years Jaiprakash Power Ventures' 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. Impressively, Jaiprakash Power Ventures' EPS catapulted from ₹0.31 to ₹0.61, over the last year. It's not often a company can achieve year-on-year growth of 100%. The best case scenario? That the business has hit a true 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. Jaiprakash Power Ventures shareholders can take confidence from the fact that EBIT margins are up from 14% to 18%, and revenue is growing. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

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 Jaiprakash Power Ventures' balance sheet strength, before getting too excited.

Are Jaiprakash Power Ventures Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

One positive for Jaiprakash Power Ventures, is that company insiders spent ₹2.1m acquiring shares in the last year. While this investment may be modest, it is great considering the lack of insider selling.

Along with the insider buying, another encouraging sign for Jaiprakash Power Ventures is that insiders, as a group, have a considerable shareholding. As a matter of fact, their holding is valued at ₹2.6b. This considerable investment should help drive long-term value in the business. Those holdings account for over 5.0% of the company; visible skin in the game.

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because Jaiprakash Power Ventures' CEO, Suren Jain, is paid at a relatively modest level when compared to other CEOs for companies of this size. Our analysis has discovered that the median total compensation for the CEOs of companies like Jaiprakash Power Ventures with market caps between ₹33b and ₹132b is about ₹33m.

Jaiprakash Power Ventures offered total compensation worth ₹24m to its CEO in the year to March 2022. That comes in below the average for similar sized companies and seems pretty reasonable. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.

Should You Add Jaiprakash Power Ventures To Your Watchlist?

Jaiprakash Power Ventures' earnings per share have been soaring, with growth rates sky high. Just as heartening; insiders both own and are buying more stock. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Jaiprakash Power Ventures belongs near the top of your watchlist. However, before you get too excited we've discovered 2 warning signs for Jaiprakash Power Ventures (1 doesn't sit too well with us!) that you should be aware of.

The good news is that Jaiprakash Power Ventures is not the only growth stock with insider buying. Here's a list of them... 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.

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.