Do Tembo Global Industries' (NSE:TEMBO) Earnings Warrant Your Attention?

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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

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 Tembo Global Industries (NSE:TEMBO). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Tembo Global Industries with the means to add long-term value to shareholders.

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Tembo Global Industries' Improving Profits

In the last three years Tembo Global Industries' earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. Thus, it makes sense to focus on more recent growth rates, instead. In impressive fashion, Tembo Global Industries' EPS grew from ₹23.90 to ₹63.11, over the previous 12 months. It's not often a company can achieve year-on-year growth of 164%. That could be a sign that the business has reached a true inflection point.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. The music to the ears of Tembo Global Industries shareholders is that EBIT margins have grown from 8.4% to 13% in the last 12 months and revenues are on an upwards trend as well. That's great to see, on both counts.

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

Check out our latest analysis for Tembo Global Industries

Tembo Global Industries isn't a huge company, given its market capitalisation of ₹7.5b. That makes it extra important to check on its balance sheet strength.

Are Tembo Global Industries Insiders Aligned With All Shareholders?

Theory would suggest that it's an encouraging sign to see high insider ownership of a company, since it ties company performance directly to the financial success of its management. So we're pleased to report that Tembo Global Industries insiders own a meaningful share of the business. In fact, they own 55% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. In terms of absolute value, insiders have ₹4.1b invested in the business, at the current share price. That's nothing to sneeze at!

Is Tembo Global Industries Worth Keeping An Eye On?

Tembo Global Industries' earnings per share growth have been climbing higher at an appreciable rate. That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. So at the surface level, Tembo Global Industries is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. It is worth noting though that we have found 4 warning signs for Tembo Global Industries (2 are significant!) that you need to take into consideration.

Although Tembo Global Industries certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of Indian companies that not only boast of strong growth but have strong insider backing.

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.