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 completely lacks a track record of revenue and profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Creative Peripherals and Distribution (NSE:CREATIVE). 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.
View our latest analysis for Creative Peripherals and Distribution
Creative Peripherals and Distribution's Earnings Per Share Are Growing.
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. I, for one, am blown away by the fact that Creative Peripherals and Distribution has grown EPS by 47% per year, over the last three years. Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.
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. While we note Creative Peripherals and Distribution's EBIT margins were flat over the last year, revenue grew by a solid 41% to ₹3.9b. That's progress.
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.
Creative Peripherals and Distribution isn't a huge company, given its market capitalization of ₹749m. That makes it extra important to check on its balance sheet strength.
Are Creative Peripherals and Distribution 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 Creative Peripherals and Distribution insiders own a significant number of shares certainly appeals to me. Indeed, with a collective holding of 78%, company insiders are in control and have plenty of capital behind the venture. This makes me think they will be incentivised to plan for the long term - something I like to see. Of course, Creative Peripherals and Distribution is a very small company, with a market cap of only ₹749m. So despite a large proportional holding, insiders only have ₹587m worth of stock. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.