Many investors, especially inexperienced ones, often buy stocks in companies with a good history, even when those companies are making losses. But as Peter Lynch in One step ahead on Wall Street“Long-term risky investments almost never pay off.” A loss-making company has yet to prove that it is profitable, and at some point the flow of external capital could dry up.

If this type of company is not your style, but you like companies that generate revenue and even profits, then you might be interested in Lemon Tree Hotels (NSE:LEMONTREE). While this doesn’t necessarily mean the company is undervalued, the company’s profitability is enough to justify some appreciation – especially if it’s growing.

Check out our latest analysis for Lemon Tree Hotels

Lemon Tree Hotels’ profits rise

Over the last three years, Lemon Tree Hotels has grown earnings per share (EPS) from a relatively low point at an impressive rate, resulting in a three-year percentage growth rate that is not particularly indicative of expected future performance. So it makes sense to focus on recent growth rates instead. It’s nice to see that Lemon Tree Hotels’ earnings per share have increased from ₹1.57 to ₹1.83 over twelve months. That’s a 17% increase; respectable growth in the bigger picture.

One way to check a company’s growth is to look at how its revenue and earnings before interest and tax (EBIT) are changing. While Lemon Tree Hotels has been able to grow its revenue nicely over the last year, EBIT margins have been subdued at the same time. So it seems that the future could bring further growth, especially if EBIT margins can remain stable.

The chart below shows how the company’s profit and revenue have changed over time. Click on the chart to see the exact numbers.

Of course, the trick is to find stocks that have their best days in the future rather than the past. You can of course base your opinion on past performance, but you may also want to check out this interactive chart with professional analysts’ EPS forecasts for Lemon Tree Hotels.

Are Lemon Tree Hotels insiders on the same page as all shareholders?

It is a good habit to review a company’s compensation policies to ensure that the CEO and management team are not putting their own interests ahead of those of shareholders with excessive pay packages. The average total compensation for CEOs of companies similar in size to Lemon Tree Hotels, with market capitalizations ranging between Rs 84 billion and Rs 268 billion, is about Rs 40 million.

The CEO of Lemon Tree Hotels received a total compensation package worth Rs 35 crore in the year to March 2023. This is below the average for similarly sized companies and seems quite reasonable. While CEO compensation is not the most important aspect of a company, when it is reasonable, it gives a little more confidence that the company’s management has shareholders’ interests in mind. In general, it can be argued that reasonable pay levels are evidence of good decision-making.

Is it worth keeping an eye on the Lemon Tree Hotels?

As mentioned, Lemon Tree Hotels is a growing company, which is encouraging. In addition, the CEO’s modest compensation should show investors that the directors have an active interest in delivering the best to shareholders. So, given its merits, the stock deserves further investigation, if not an addition to your watchlist. Before you get too excited, though, here’s what we found: 1 warning sign for Lemon Tree Hotels that you should know.

There is always the possibility of buying shares that are not increasing yields and not Insiders have been buying shares. But for those who consider these important metrics, we recommend looking at companies that Do have these features. You can access a customized list of Indian companies that have demonstrated growth backed by significant insider ownership.

Please note that the insider transactions discussed in this article are reportable transactions in the respective jurisdiction.

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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.