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Here’s why Airo Lam (NSE:AIROLAM) caught investors’ attention

It is common for many investors, especially those who are inexperienced, to buy stocks of companies with a good history, even if those companies are loss-making. But as Peter Lynch said in One on Wall Street, “Far plans almost never pay off.” Loss-making companies can act as a sponge for capital. Investors should therefore be careful not to waste money after losing it.

So if this idea of ​​high risk and high reward doesn’t suit you, you might be more interested in profitable, growing businesses, like Airo Lam (NSE:AIROLAM). This is not to say that the business presents the best investment opportunity, but profitability is a key element of business success.

Check out our latest analysis for Airo Lam

How fast is Airo Lam growing?

If you believe that markets are even vaguely efficient, then over the long term you would expect a company’s share price to follow its earnings per share (EPS) . This means that EPS growth is considered a truly positive thing by most successful long-term investors. Shareholders will be happy to know that Airo Lam’s EPS has grown 19% each year, compound, over three years. If the company can maintain this kind of growth, we expect shareholders to come away happy.

A close look at revenue growth and earnings before interest and tax (EBIT) margins can help to get a sense of the sustainability of recent earnings growth. Airo Lam maintained stable EBIT margins over the last year, while growing its revenue by 5.4% to ₹2.1 billion. This is a real positive point.

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:AIROLAM Earnings and Revenue History May 9, 2024

Since Airo Lam is not a giant, with a market capitalization of ₹2.4b, you should definitely check its cash and debt. Before being too excited about one’s prospects.

Are Airo Lam insiders aligned with all shareholders?

They say there is no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market on fire. This is because insider buying often indicates that those closest to the company are confident that the stock price will perform well. However, insiders are sometimes wrong and we don’t know exactly the motivation for their acquisitions.

Confidence in the company remains high among insiders as no shares have been sold by the company’s management or board members. But the bigger problem is that Chairman and Managing Director Pravin Kumar Patel paid ₹4.5 million to buy shares at an average price of ₹67.52. Purchases like this tell us the confidence management has in the company’s future.

It’s reassuring that Airo Lam insiders are buying the stock, but that’s not the only reason to think management is being fair to shareholders. Concretely, the CEO is paid quite reasonably for a company of this size. Our analysis found that the median total compensation for CEOs of companies like Airo Lam with a market capitalization of less than ₹17b is around ₹3.3m.

Airo CEO Lam received total compensation of just ₹1.1 million in the year to March 2023. One might view this salary as somewhat nominal, suggesting that the CEO did not need a lot of pay to stay motivated. CEO pay levels are not the most important metric for investors, but when compensation is modest, it promotes better alignment between the CEO and common shareholders. It can also be a sign of a culture of integrity, in a broader sense.

Is Airo Lam worth watching?

There’s no denying that Airo Lam has been growing its earnings per share at a very impressive rate. It’s attractive. And that’s not the only positive point either. We need to consider both insider buying and reasonable compensation. Overall, the message seems to be that this title is worth looking into, at least for a while. Please note, however, that Airo Lam displays 3 warning signs in our investment analysis and one of them is worrying…

There are plenty of other companies where insiders buy shares. So if you like the sound of Airo Lam, you’ll probably love this collection of IN companies that have grown alongside insider buying over the past three months.

Please note that the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

The assessment is complex, but we help to simplify it.

Find out if Airo Lam is potentially overvalued or undervalued by checking out our full analysis, which includes fair value estimates, risks and warnings, dividends, insider trading and financial health.

See the free analysis

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to constitute financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your objectives or your financial situation. Our goal is to provide you with targeted, long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.