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. 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.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Vindhya Telelinks (NSE:VINDHYATEL). While profit is not necessarily a social good, it's easy to admire a business than can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
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How Fast Is Vindhya Telelinks Growing?
As one of my mentors once told me, share price follows earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. Who among us would not applaud Vindhya Telelinks's stratospheric annual EPS growth of 43%, compound, over the last three years? While that sort of growth rate isn't sustainable for long, it certainly catches my attention; like a glint in the eye of my lover.
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. Vindhya Telelinks shareholders can take confidence from the fact that EBIT margins are up from 12% to 17%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.
In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.
Vindhya Telelinks isn't a huge company, given its market capitalization of ₹16b. That makes it extra important to check on its balance sheet strength.
Are Vindhya Telelinks Insiders Aligned With All Shareholders?
As a general rule, I think it worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. I discovered that the median total compensation for the CEOs of companies like Vindhya Telelinks with market caps between ₹7.0b and ₹28b is about ₹17m.
Vindhya Telelinks offered total compensation worth ₹13.7m to its CEO in the year to March 2018. That seems pretty reasonable, especially given its below the median for similar sized companies. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of good governance, more generally.
Should You Add Vindhya Telelinks To Your Watchlist?
Vindhya Telelinks's earnings have taken off like any random crypto-currency did, back in 2017. With rocketing profits, its seems likely the business has a rosy future; and it may have hit an inflection point. Meanwhile, the very reasonable CEO pay reassures me a little, since it points to an absence profligacy. While I couldn't be sure without a deeper dive, it does seem that Vindhya Telelinks has the hallmarks of a quality business; and that would make it well worth watching. Now, you could try to make up your mind on Vindhya Telelinks by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
Although Vindhya Telelinks certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.