Here’s why Deep Industries (NSE:DEEPINDS) has caught investors’ attention

Investors are often driven by the idea of ​​discovering “the next big thing,” even if that means buying “historic stocks” without any income, let alone profit. But as Peter Lynch said in One on Wall Street, “Far plans almost never pay off.” Loss-making companies are always racing against time to reach financial viability, so investors in these companies may take on more risk than they should.

Contrary to all this, many investors prefer to focus on companies like Deep industries (NSE: DEEPINDS), which not only generates revenue, but also profits. While this doesn’t necessarily mean it’s undervalued, the company’s profitability is enough to warrant some appreciation, especially if it’s growing.

Check out our latest analysis for Deep Industries

How fast are deep industries growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so we can expect the stock price to eventually follow earnings per share (EPS) results. Therefore, many investors like to buy stocks of companies with growing EPS. To the delight of shareholders, Deep Industries has delivered an impressive annual EPS growth of 39%, compound, over the past three years. Even though this type of growth rate is not sustainable, it certainly attracts the attention of potential investors.

Revenue growth is a great indicator of the sustainability of growth and, combined with a high earnings before interest and tax (EBIT) margin, it is a great way for a company to maintain a competitive edge in the market . Music to the ears of Deep Industries shareholders is that EBIT margins have increased from 29% to 31% over the last 12 months and revenue is also on an upward trend. These are two excellent indicators for checking potential growth.

The chart below shows how the company’s financial and top-line results have changed over time. To see the actual numbers, click on the chart.

Deep Industries is not a big company, considering its market capitalization of ₹20 billion. It is therefore particularly important to check the strength of your balance sheet.

Are Deep Industries insiders aligned with all shareholders?

Seeing insiders owning a large portion of issued shares is often a good sign. Their incentives will be aligned with those of investors and there is less likelihood that a sudden sell-off will impact the stock price. So we’re happy to report that Deep Industries insiders own a significant stake in the company. In fact, they own 54% of the company, so they will share the same pleasures and challenges as ordinary shareholders. Intuition will tell you that this is a good sign, because it suggests that they will be incentivized to create shareholder value over the long term. In absolute value terms, insiders have invested ₹11b in the company, at the current share price. It’s nothing to sneeze at!

It means a lot to see insiders investing in the company, but shareholders may be wondering if the compensation policies are in their best interests. Our quick analysis of CEO compensation seems to indicate that this is the case. The median total compensation for CEOs of companies similar in size to Deep Industries, with market capitalization between ₹8.4 billion and ₹33 billion, is around ₹16 million.

The CEO of Deep Industries only received compensation totaling ₹4.9 million in the year to March 2023. You might consider this salary somewhat symbolic, which suggests that the CEO has no you don’t 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. Generally speaking, it can be argued that reasonable pay levels demonstrate good decision-making.

Are deep industries worth watching?

Deep Industries’ earnings per share growth has been growing at an appreciable pace. The icing on the cake is that insiders own a lot of shares and the CEO compensation really seems quite reasonable. The strong improvement in EPS suggests that the companies are doing well. Deep Industries is certainly doing some things right and deserves investigation. Remember that there may still be risks. For example, we identified 2 warning signs for Deep Industries which you should be aware of.

While opting for stocks without earnings growth and insider buying can yield results, for investors who value these key metrics, here is a carefully selected list of IN companies with promising growth potential and a privileged trust.

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

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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.