Stock Analysis
The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Adani Enterprises (NSE:ADANIENT). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Adani Enterprises with the means to add long-term value to shareholders.
See our latest analysis for Adani Enterprises
Adani Enterprises has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. Thus, it makes sense to focus on more recent growth rates, instead. Impressively, Adani Enterprises' EPS catapulted from ₹8.81 to ₹23.12, over the last year. It's not often a company can achieve year-on-year growth of 162%.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Adani Enterprises maintained stable EBIT margins over the last year, all while growing revenue 24% to ₹1.2t. That's progress.
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Adani Enterprises' balance sheet strength, before getting too excited.
As a general rule, it's worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. The median total compensation for CEOs of companies similar in size to Adani Enterprises, with market caps over ₹666b, is around ₹96m.
The Adani Enterprises CEO received ₹56m in compensation for the year ending March 2023. That comes in below the average for similar sized companies and seems pretty reasonable. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.
Adani Enterprises' earnings per share growth have been climbing higher at an appreciable rate. Such fast EPS growth prompts the question: has the business reached an inflection point? What's more, the fact that the CEO's compensation is quite reasonable is a sign that the company is conscious of excessive spending. It will definitely require further research to be sure, but it does seem that Adani Enterprises has the hallmarks of a quality business; and that would make it well worth watching. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Adani Enterprises that you should be aware of.
Although Adani Enterprises certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
Find out whether Adani Enterprises is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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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.
Adani Enterprises Limited, together with its subsidiaries, engages in the coal trading, mining, logistics, power generation, edible oil and agro commodities, and other businesses in India and internationally.
Solid track record with worrying balance sheet.
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