Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. 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 D. P. Abhushan (NSE:DPABHUSHAN), 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. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
Check out our latest analysis for D. P. Abhushan
How Fast Is D. P. Abhushan 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. Who among us would not applaud D. P. Abhushan's stratospheric annual EPS growth of 39%, compound, over the last three years? That sort of growth never lasts long, but like a shooting star it is well worth watching when it happens.
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. D. P. Abhushan maintained stable EBIT margins over the last year, all while growing revenue 13% to ₹8.1b. That's a real positive.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
D. P. Abhushan isn't a huge company, given its market capitalization of ₹979m. That makes it extra important to check on its balance sheet strength.
Are D. P. Abhushan Insiders Aligned With All Shareholders?
Personally, I like to see high insider ownership of a company, since it suggests that it will be managed in the interests of shareholders. So as you can imagine, the fact that D. P. Abhushan insiders own a significant number of shares certainly appeals to me. In fact, they own 80% 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, D. P. Abhushan is a very small company, with a market cap of only ₹979m. So despite a large proportional holding, insiders only have ₹779m worth of stock. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.