Stock Analysis

Do NTPC's (NSE:NTPC) Earnings Warrant Your Attention?

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NSEI:NTPC
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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.

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

Check out our latest analysis for NTPC

How Fast Is NTPC Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Over the last three years, NTPC has grown EPS by 8.1% per year. That growth rate is fairly good, assuming the company can keep it up.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. EBIT margins for NTPC remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 32% to ₹1.6t. That's encouraging news for the company!

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

earnings-and-revenue-history
NSEI:NTPC Earnings and Revenue History November 17th 2022

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for NTPC's future EPS 100% free.

Are NTPC Insiders Aligned With All Shareholders?

As a general rule, it's worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. For companies with market capitalisations over ₹647b, like NTPC, the median CEO pay is around ₹108m.

The NTPC CEO received total compensation of just ₹14m in the year to March 2022. First impressions seem to indicate a compensation policy that is favourable to shareholders. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is NTPC Worth Keeping An Eye On?

One positive for NTPC is that it is growing EPS. That's nice to see. To add to this, the modest CEO compensation should tell investors that the directors have an active interest in delivering the best for shareholders. So based on its merits, the stock deserves further research, if not an addition to your watchlist. It is worth noting though that we have found 2 warning signs for NTPC (1 doesn't sit too well with us!) that you need to take into consideration.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you 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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