Here's Why We Think Persistent Systems (NSE:PERSISTENT) Is Well Worth Watching
It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Persistent Systems (NSE:PERSISTENT). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Persistent Systems with the means to add long-term value to shareholders.
How Fast Is Persistent Systems Growing?
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That makes EPS growth an attractive quality for any company. Shareholders will be happy to know that Persistent Systems' EPS has grown 28% each year, compound, over three years. So it's not surprising to see the company trades on a very high multiple of (past) earnings.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. The music to the ears of Persistent Systems shareholders is that EBIT margins have grown from 13% to 16% in the last 12 months and revenues are on an upwards trend as well. Ticking those two boxes is a good sign of growth, in our book.
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.
View our latest analysis for Persistent Systems
Fortunately, we've got access to analyst forecasts of Persistent Systems' future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Persistent Systems Insiders Aligned With All Shareholders?
Owing to the size of Persistent Systems, we wouldn't expect insiders to hold a significant proportion of the company. But we are reassured by the fact they have invested in the company. Notably, they have an enviable stake in the company, worth ₹326b. This totals to 33% of shares in the company. Enough to lead management's decision making process down a path that brings the most benefit to shareholders. Very encouraging.
Should You Add Persistent Systems To Your Watchlist?
You can't deny that Persistent Systems has grown its earnings per share at a very impressive rate. That's attractive. With EPS growth rates like that, it's hardly surprising to see company higher-ups place confidence in the company through continuing to hold a significant investment. On the balance of its merits, solid EPS growth and company insiders who are aligned with the shareholders would indicate a business that is worthy of further research. One of Buffett's considerations when discussing businesses is if they are capital light or capital intensive. Generally, a company with a high return on equity is capital light, and can thus fund growth more easily. So you might want to check this graph comparing Persistent Systems' ROE with industry peers (and the market at large).
While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in IN with promising growth potential and insider confidence.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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This article by Simply Wall St 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 be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.