Here’s why Spectrum Electrical Industries (NSE:SPECTRUM) has caught investors’ attention

The excitement of investing in a company that can turn around its fortunes is a major attraction for some speculators, so even companies that have no revenues, no profits and a history of failure can successfully find investors. But as Peter Lynch said in Ahead of 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.

Contrary to all this, many investors prefer to focus on companies like Spectrum Electrical Industries (NSE:SPECTRUM), which not only generates revenue, but also profits. Even though this company is fairly valued by the market, investors will agree that generating consistent profits will continue to provide Spectrum Electrical Industries with the means to add long-term shareholder value.

Check out our latest analysis for Spectrum Electrical Industries

How fast are the spectrum electrical industries growing?

The market is a short-term voting machine, but a long-term weighing machine, so we can expect the stock price to eventually follow earnings per share (EPS) results. This makes EPS growth an attractive quality for any company. Admittedly, Spectrum Electrical Industries has grown its EPS by 49% per year over the last three years. While this type of growth rate is unsustainable, it certainly catches the attention of potential investors.

A close look at revenue growth and earnings before interest and tax (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Music to Spectrum Electrical Industries shareholders’ ears is that EBIT margins have increased from 7.1% to 11% over the last 12 months, and revenue is also on an upward trend. These are both great indicators to check potential growth.

In the chart below, you can see how the company has grown its profits and revenue over time. Click on the chart to see the exact numbers.

While it’s always good to see rising profits, it’s worth remembering that a weak balance sheet can work against a company. So check Spectrum Electrical Industries’ balance sheet strength before getting too excited.

Are Spectrum Electrical Industries Insiders Aligned With All Shareholders?

Many consider a high number of inside shareholders to be a strong sign of alignment between a company’s management and common shareholders. We are therefore pleased to announce that internal shareholders of Spectrum Electrical Industries own a significant share of the company. In fact, they own 66% of the company, which will allow them to share the same joys and challenges as ordinary shareholders. It is therefore obvious that they will be encouraged to plan for the long term, which is positive for shareholders who adopt a strategy of remaining seated. This means that they have a significant part of their own capital that depends on the performance of the company!

While it’s always good to see strong conviction in a company from insiders, thanks to massive investment, it’s also important for shareholders to question whether executive compensation policies are reasonable. Our quick analysis of CEO compensation suggests that this is the case. The median total CEO compensation of companies similar in size to Spectrum Electrical Industries, with market capitalizations ranging from ₹17b to ₹67b, is about ₹23m.

The CEO of Spectrum Electrical Industries took home total compensation worth ₹12 million in the year to March 2023. That’s actually lower than the median for CEOs at similarly sized companies. CEO compensation isn’t the most important aspect to consider in a company, but when it’s reasonable, it gives a little more confidence that executives are looking out for shareholders’ interests. It can also be a sign of good governance, more generally.

Should you add Spectrum Electrical Industries to your watchlist?

Spectrum Electrical Industries’ earnings have taken off quite impressively. The cherry on top is that insiders own a ton of shares and the CEO compensation looks quite reasonable. The sharp improvement in EPS suggests that the company is doing well. Spectrum Electrical Industries is certainly doing some things right and is worth looking into. However, before you get too excited, we found out 2 Warning Signs for Spectrum Electrical Industries (1 cannot be ignored!) that you need to be aware of.

It is still possible to succeed by buying stocks that are not growing income and not have insiders buying shares. But for those who consider these metrics important, we encourage you to check out companies that TO DO have these characteristics. You can access a personalized list of Indian companies that have demonstrated growth supported by large insider holdings.

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 an unbiased methodology and our articles are not intended to constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term, focused analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative elements. Simply Wall St has no position in any of the stocks mentioned.

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