With EPS Growth And More, Johnson Controls-Hitachi Air Conditioning India (NSE:JCHAC) Is Interesting

Simply Wall St

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

So if you're like me, you might be more interested in profitable, growing companies, like Johnson Controls-Hitachi Air Conditioning India (NSE:JCHAC). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

See our latest analysis for Johnson Controls-Hitachi Air Conditioning India

How Quickly Is Johnson Controls-Hitachi Air Conditioning India Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. It's no surprise, then, that I like to invest in companies with EPS growth. Johnson Controls-Hitachi Air Conditioning India managed to grow EPS by 11% per year, over three years. That's a pretty good rate, if the company can sustain it.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). While we note Johnson Controls-Hitachi Air Conditioning India's EBIT margins were flat over the last year, revenue grew by a solid 13% to ₹24b. That's progress.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

NSEI:JCHAC Income Statement, September 19th 2019

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Johnson Controls-Hitachi Air Conditioning India's future profits.

Are Johnson Controls-Hitachi Air Conditioning India Insiders Aligned With All Shareholders?

I always like to check up on CEO compensation, because I think that reasonable pay levels, around or below the median, can be a sign that shareholder interests are well considered. I discovered that the median total compensation for the CEOs of companies like Johnson Controls-Hitachi Air Conditioning India with market caps between ₹29b and ₹114b is about ₹29m.

Johnson Controls-Hitachi Air Conditioning India offered total compensation worth ₹18.5m to its CEO in the year to March 2019. That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add Johnson Controls-Hitachi Air Conditioning India To Your Watchlist?

One positive for Johnson Controls-Hitachi Air Conditioning India is that it is growing EPS. That's nice to see. On top of that, my faith in the board of directors is strengthened by the fact of the reasonable CEO pay. So I do think the stock deserves further research, if not instant addition to your watchlist. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Johnson Controls-Hitachi Air Conditioning India is trading on a high P/E or a low P/E, relative to its industry.

Although Johnson Controls-Hitachi Air Conditioning India certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, 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

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.