It is common for many investors, especially those who are inexperienced, to buy shares in companies that have a good history, even if those companies are loss-making. But as Peter Lynch said in One Up on Wall Street, “Long shots almost never pay off.” A loss-making company has not yet proven itself with profits, and eventually the inflow of external capital may dry up.
Contrary to all this, many investors prefer to focus on companies like California software (NSE: CALSOFT), which not only generates revenue, but also profits. Even if this company is correctly valued by the market, investors would agree that generating consistent earnings will continue to provide California Software with the means to add long-term shareholder value.
Check out our latest analysis for California Software
California Software Profit Improvement
In business, profits are a key measure of success; and stock prices tend to reflect earnings per share (EPS) performance. So, for many aspiring investors, improving EPS is seen as a good sign. It is an outstanding achievement for California Software to have increased EPS from ₹0.13 to ₹2.94 in just one year. While sustaining growth at this level is difficult, it bodes well for the company’s future prospects. Could this be a sign that the company has reached an inflection point?
Revenue growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and tax (EBIT) margin, it’s a great way for a business to maintain a competitive advantage in the market. The music to California Software shareholders’ ears is that EBIT margins have increased from 23% to 58% in the past 12 months and revenue is also on an upward trend. It’s great to see, on both counts.
In the table below, you can see how the company has increased its profits and revenue over time. To see the actual numbers, click on the chart.
Since California Software is not a giant, with a market cap of ₹369 million, you should definitely check its cash flow and debt. before getting too excited about his prospects.
Are California software insiders aligned with all shareholders?
The theory would suggest that it is an encouraging sign to see strong insider ownership of a company, as it directly links the company’s performance to the financial success of its management. We are therefore pleased to report that California Software insiders own a significant share of the company. In fact, they own 48% of the shares, making insiders a very influential group of shareholders. Those reassured by strong insider ownership like this should be happy, as it implies that those running the company are genuinely motivated to create shareholder value. Although, with California Software valued at ₹369 million, it is a small company we are talking about. Thus, this large proportion of shares held by insiders only amounts to ₹178 million. That’s not too big a stake, but it should still motivate insiders to deliver the best results to shareholders.
Is California software worth watching?
California Software’s earnings per share growth has increased at a healthy pace. This level of EPS growth does wonders for attracting investment, and the big insider investment in the business is just the icing on the cake. Sometimes rapid EPS growth is a sign that the business has reached an inflection point, so there is a potential opportunity here. Based on the sum of its parts, we really think California Software is worth keeping a close eye on. We don’t want to rain too much on the parade, but we also found 5 Warning Signs for California Software (3 are a bit nasty!) which you should be aware of.
There is always the possibility of doing well by buying stocks that are not increased income and not have insiders buying stocks. But for those who consider these measures important, we encourage you to check out the companies that do have these characteristics. You can access a free list of them here.
Please note that insider trading discussed in this article refers to reportable trading 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 be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.