Should You Be Adding L'Oréal (EPA:OR) To Your Watchlist Today?

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. 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.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like L'Oréal (EPA:OR). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide L'Oréal with the means to add long-term value to shareholders.

View our latest analysis for L'Oréal

L'Oréal's Earnings Per Share Are Growing

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Impressively, L'Oréal has grown EPS by 23% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. EBIT margins for L'Oréal remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 14% to €40b. That's encouraging news for the company!

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

Fortunately, we've got access to analyst forecasts of L'Oréal's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are L'Oréal Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a €212b company like L'Oréal. But we do take comfort from the fact that they are investors in the company. Notably, they have an enviable stake in the company, worth €14b. This suggests that leadership will be very mindful of shareholders' interests when making decisions!

Does L'Oréal Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into L'Oréal's strong EPS growth. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in L'Oréal's continuing strength. The growth and insider confidence is looked upon well and so it's worthwhile to investigate further with a view to discern the stock's true value. Now, you could try to make up your mind on L'Oréal 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 L'Oréal 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.