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. 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 CyberTech Systems and Software (NSE:CYBERTECH), 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.
How Fast Is CyberTech Systems and Software Growing Its Earnings Per Share?
In business, though not in life, profits are a key measure of success; and share prices tend to reflect 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 CyberTech Systems and Software's EPS went from ₹0.81 to ₹4.67 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company.
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. CyberTech Systems and Software shareholders can take confidence from the fact that EBIT margins are up from 5.2% to 17%, and revenue is growing. That's great to see, on both counts.
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
NSEI:CYBERTECH Income Statement, September 12th 2019
CyberTech Systems and Software isn't a huge company, given its market capitalization of ₹1.6b. That makes it extra important to check on its balance sheet strength.
Are CyberTech Systems and Software Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
We haven't seen any insiders selling CyberTech Systems and Software shares, in the last year. With that in mind, it's heartening that Viswanath Tadimety, the Founder of the company, paid ₹3.0m for shares at around ₹0.52 each.
And the insider buying isn't the only sign of alignment between shareholders and the board, since CyberTech Systems and Software insiders own more than a third of the company. In fact, they own 46% of the shares, making insiders a very influential shareholder group. I'm reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. Valued at only ₹1.6b CyberTech Systems and Software is really small for a listed company. That means insiders only have ₹734m worth of shares, despite the large proportional holding. That might not be a huge sum but it should be enough to keep insiders motivated!
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. The cherry on top is that the CEO, Vish Tadimety is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations under ₹14b, like CyberTech Systems and Software, the median CEO pay is around ₹1.5m.
The CEO of CyberTech Systems and Software was paid just ₹100k in total compensation for the year ending March 2018. You could consider this pay as somewhat symbolic, which suggests the CEO does not need a lot of compensation to stay motivated. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.
Should You Add CyberTech Systems and Software To Your Watchlist?
CyberTech Systems and Software's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. The cherry on top is that insiders own a bunch of shares, and one has been buying more. Because of the potential that it has reached an inflection point, I'd suggest CyberTech Systems and Software belongs on the top of your watchlist. Now, you could try to make up your mind on CyberTech Systems and Software by focusing on just these factors, oryou could also consider how its price-to-earnings ratio compares to other companies in its industry.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of CyberTech Systems and Software, you'll probably love this freelist of growing companies that insiders are buying.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
