It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
In contrast to all that, I prefer to spend time on companies like Beta Drugs (NSE:BETA), which has not only revenues, but also profits. Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
View our latest analysis for Beta Drugs
Beta Drugs's Improving Profits
In the last three years Beta Drugs's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. As a result, I'll zoom in on growth over the last year, instead. Beta Drugs boosted its trailing twelve month EPS from ₹7.82 to ₹9.30, in the last year. That's a 19% gain; respectable growth in the broader scheme of things.
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. While we note Beta Drugs's EBIT margins were flat over the last year, revenue grew by a solid 30% to ₹659m. That's a real positive.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
Beta Drugs isn't a huge company, given its market capitalization of ₹631m. That makes it extra important to check on its balance sheet strength.
Are Beta Drugs 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 as you can imagine, the fact that Beta Drugs insiders own a significant number of shares certainly appeals to me. In fact, they own 74% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. Of course, Beta Drugs is a very small company, with a market cap of only ₹631m. That means insiders only have ₹466m worth of shares, despite the large proportional holding. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.