Like a puppy chasing its tail, some new investors often chase ‘the next big thing’, even if that means buying ‘story stocks’ without revenue, let alone profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?’ Leuz et. al. found that it is ‘quite common’ for investors to lose money by buying into ‘pump and dump’ schemes.
So if you’re like me, you might be more interested in profitable, growing companies, like Creative Peripherals and Distribution (NSE:CREATIVE). 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.
How Quickly Is Creative Peripherals and Distribution Increasing Earnings Per Share?
If you believe that markets are even vaguely efficient, then over the long term you’d expect a company’s share price to follow its earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. I, for one, am blown away by the fact that Creative Peripherals and Distribution has grown EPS by 47% per year, over the last three years. While that sort of growth rate isn’t sustainable for long, it certainly catches my attention; like a crow with a sparkly stone.
One way to double-check a company’s growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Creative Peripherals and Distribution maintained stable EBIT margins over the last year, all while growing revenue 41% to ₹3.9b. That’s progress.
In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.
Since Creative Peripherals and Distribution is no giant, with a market capitalization of ₹746m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Creative Peripherals and Distribution Insiders Aligned With All Shareholders?
Personally, I like to see high insider ownership of a company, since it suggests that it will be managed in the interests of shareholders. So we’re pleased to report that Creative Peripherals and Distribution insiders own a meaningful share of the business. In fact, they own 78% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes me think they will be incentivised to plan for the long term – something I like to see. Valued at only ₹746m Creative Peripherals and Distribution is really small for a listed company. That means insiders only have ₹585m worth of shares, despite the large proportional holding. 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 EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. 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. Of course, just because Creative Peripherals and Distribution is growing does not mean it is undervalued. If you’re wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.