It’s only natural that many investors, especially those who are new to the game, prefer to buy shares in ‘sexy’ stocks with a good story, even if those businesses lose money. But as Warren Buffett has mused, ‘If you’ve been playing poker for half an hour and you still don’t know who the patsy is, you’re the patsy.’ When they buy such story stocks, investors are all too often the patsy.
In contrast to all that, I prefer to spend time on companies like Creative Peripherals and Distribution (NSE:CREATIVE), which has not only revenues, but also profits. While that doesn’t make the shares worth buying at any price, you can’t deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital – but unlike such a sponge they do not always produce something when squeezed.
See our latest analysis for Creative Peripherals and Distribution
How Fast Is Creative Peripherals and Distribution Growing Its Earnings Per Share?
In the last three years Creative Peripherals and Distribution’s earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn’t tell us much. Thus, it makes sense to focus on more recent growth rates, instead. Like a firecracker arcing through the night sky, Creative Peripherals and Distribution’s EPS shot from ₹4.35 to ₹7.86, over the last year. You don’t see 81% year-on-year growth like that, very often. The best case scenario? That the business has hit a true inflection point.
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. While we note Creative Peripherals and Distribution’s EBIT margins were flat over the last year, revenue grew by a solid 31% to ₹4.4b. That’s a real positive.
The chart below shows how the company’s bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
Creative Peripherals and Distribution isn’t a huge company, given its market capitalization of ₹1.3b. That makes it extra important to check on its balance sheet strength.
Are Creative Peripherals and Distribution Insiders Aligned With All Shareholders?
Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So as you can imagine, the fact that Creative Peripherals and Distribution insiders own a significant number of shares certainly appeals to me. Indeed, with a collective holding of 78%, company insiders are in control and have plenty of capital behind the venture. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. Of course, Creative Peripherals and Distribution is a very small company, with a market cap of only ₹1.3b. So despite a large proportional holding, insiders only have ₹1.0b worth of stock. That’s not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.
Is Creative Peripherals and Distribution Worth Keeping An Eye On?
Creative Peripherals and Distribution’s earnings have taken off like any random crypto-currency did, back in 2017. That sort of growth is nothing short of eye-catching, and the large investment held by insiders certainly brightens my view of the company. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So to my mind Creative Peripherals and Distribution is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. While we’ve looked at the quality of the earnings, we haven’t yet done any work to value the stock. So if you like to buy cheap, you may want to check if Creative Peripherals and Distribution is trading on a high P/E or a low P/E, relative to its industry.
Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
If you spot an error that warrants correction, please contact the editor at [email protected]. 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
Discounted cash flow calculation for every stock
Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.
