Does United Drilling Tools (NSE:UNIDT) deserve a spot on your watchlist?
For starters, it might seem like a good idea (and an exciting prospect) to buy a company that tells investors a good story, even if it completely lacks a track record of revenue and earnings. But the reality is that when a company loses money every year, for long enough, its investors will usually take their share of those losses.
If, on the other hand, you like businesses that generate revenue and even profit, then you might be interested in United drilling tools (NSE: UNIDT). Now, I’m not saying the stock is necessarily undervalued today; but I can’t help but appreciate the profitability of the business itself. In comparison, loss-making companies act like a sponge for capital – but unlike such a sponge, they don’t always produce something when pressed.
See our latest review for United Drilling Tools
How fast is United Drilling Tools growing earnings per share?
The market is a short-term voting machine, but a long-term weighing machine, so stock price eventually follows earnings per share (EPS). This makes EPS growth an attractive quality for any business. While a tree regularly reaches for the sky, United Drilling Tools’ EPS has increased by 26% each year, compounded, over three years. Generally, we would say that if a company can follow this kind of growth, shareholders will be smiling.
I like to see revenue growth as an indication that growth is sustainable, and I look for a high margin on earnings before interest and taxes (EBIT) to point to a competitive moat (although some low-margin companies also have moats). United Drilling Tools shareholders can take comfort in the fact that EBIT margins have improved from 34% to 37% and revenues are increasing. Checking those two boxes is a good sign of growth, in my book.
The chart below shows how the company’s top and bottom line has grown over time. To see the actual numbers, click on the chart.
United Drilling Tools is not a big company, considering its market capitalization of ₹9.3 billion. It is therefore very important to check the strength of its balance sheet.
Are United Drilling Tools insiders aligned with all shareholders?
Personally, I like to see high insider ownership in a company, as it suggests that it will be run in the interests of shareholders. So, as you can imagine, the fact that United Drilling Tools insiders hold a significant number of shares certainly appeals to me. Indeed, with a collective 78% ownership, company insiders control and have significant capital behind the company. To me, this is a good sign as it suggests that they will be incentivized to create long-term shareholder value. In terms of absolute value, insiders have invested ₹7.2 billion in the company, using the current share price. That should be more than enough to keep them focused on creating shareholder value!
Is United Drilling Tools worth watching?
For growth investors like me, United Drilling Tools’ gross earnings growth rate is a beacon in the night. Additionally, the high level of insider ownership impresses me and suggests that I am not the only one enjoying EPS growth. Rapid growth and confident insiders should be enough to warrant further research. So the answer is that I think it’s a good stock to follow. It must be said that we discovered 2 warning signs for United Drilling Tools which you should be aware of before investing here.
Of course, you can (sometimes) buy stocks that are not increased income and do not have insiders buying stocks. But as a growth investor, I always like to check out 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.