Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Somany Home Innovation (NSE: SHIL). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
See our latest analysis for Somany Home Innovation
How Fast Is Somany Home Innovation Growing Its Earnings Per Share?
In a capitalist society capital chases profits, and that means share prices tend to rise with earnings per share (EPS). So like a ray of sunshine through a gap in the clouds, improving EPS is considered a good sign. It is therefore awe-striking that Somany Home Innovation’s EPS went from ₹ 4.83 to ₹ 25.81 in just one year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company’s growth. The good news is that Somany Home Innovation is growing revenues, and EBIT margins improved by 2.8 percentage points to 7.6%, 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 Somany Home Innovation is no giant, with a market capitalization of ₹ 21b, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Somany Home Innovation Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. That’s because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders do not always get it right.
It’s good to see Somany Home Innovation insiders walking the walk, by spending ₹ 32m on shares in just twelve months. And when you consider that there was no insider selling, you can understand why shareholders might believe that lady luck will grace this business. It is also worth noting that it was Rajendra Somany who made the biggest single purchase, worth ₹ 20m, paying ₹ 391 per share.
On top of the insider buying, it’s good to see that Somany Home Innovation insiders have a valuable investment in the business. With a whopping ₹ 3.9b worth of shares as a group, insiders have plenty riding on the company’s success. At 18% of the company, the co-investment by insiders gives me confidence that management will make long-term focused decisions.
Should You Add Somany Home Innovation To Your Watchlist?
Somany Home Innovation’s earnings have taken off like any random crypto-currency did, back in 2017. Just as heartening; insiders both own and are buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Somany Home Innovation deserves timely attention. Do not forget that there may still be risks. For instance, we’ve identified 2 warning signs for Somany Home Innovation that you should be aware of.
The good news is that Somany Home Innovation 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.
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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 into account 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.