Should You Be Adding Indian Railway Finance (NSE:IRFC) To Your Watchlist Today?
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 currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
So if this idea of high risk and high reward doesn’t suit, you might be more interested in profitable, growing companies, like Indian Railway Finance (NSE:IRFC). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Indian Railway Finance with the means to add long-term value to shareholders.
Indian Railway Finance’s Earnings Per Share Are Growing
The market is a voting machine in the short term, but a weighing machine in the long term, so you’d expect share price to follow earnings per share (EPS) outcomes eventually. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Indian Railway Finance managed to grow EPS by 14% per year, over three years. That’s a pretty good rate, if the company can sustain it.
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 Indian Railway Finance achieved similar EBIT margins to last year, revenue grew by a solid 18% to ₹66b. That’s encouraging news for the company!
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.
While profitability drives the upside, prudent investors always check the balance sheet, too.
Are Indian Railway Finance Insiders Aligned With All Shareholders?
It’s a good habit to check into a company’s remuneration policies to ensure that the CEO and management team aren’t putting their own interests before that of the shareholder with excessive salary packages. The median total compensation for CEOs of companies similar in size to Indian Railway Finance, with market caps between ₹331b and ₹993b, is around ₹60m.
The Indian Railway Finance CEO received total compensation of just ₹6.6m in the year to March 2022. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Does Indian Railway Finance Deserve A Spot On Your Watchlist?
One important encouraging feature of Indian Railway Finance is that it is growing profits. To add to this, the modest CEO compensation should tell investors that the directors have an active interest in delivering the best for shareholders. All things considered, Indian Railway Finance is definitely worth taking a deeper dive into. You still need to take note of risks, for example – Indian Railway Finance has 2 warning signs (and 1 which is significant) we think you should know about.
Although Indian Railway Finance certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, 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.
Valuation is complex, but we’re helping make it simple.
Find out whether Indian Railway Finance is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.