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 Larsen & Toubro (NSE:LT). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
Larsen & Toubro's Earnings Per Share Are Growing.
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. It's no surprise, then, that I like to invest in companies with EPS growth. As a tree reaches steadily for the sky, Larsen & Toubro's EPS has grown 20% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.
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). I note that Larsen & Toubro's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Larsen & Toubro maintained stable EBIT margins over the last year, all while growing revenue 16% to ₹1.5t. That's progress.
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Larsen & Toubro's forecast profits?
Are Larsen & Toubro Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a ₹1.9t company like Larsen & Toubro. But we are reassured by the fact they have invested in the company. With a whopping ₹5.0b worth of shares as a group, insiders have plenty riding on the company's success. That's certainly enough to make me think that management will be very focussed on long term growth.
Does Larsen & Toubro Deserve A Spot On Your Watchlist?
For growth investors like me, Larsen & Toubro's raw rate of earnings growth is a beacon in the night. Further, the high level of insider buying impresses me, and suggests that I'm not the only one who appreciates the EPS growth. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. Now, you could try to make up your mind on Larsen & Toubro by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
Although Larsen & Toubro 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
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