Here's Why Tesco (LON:TSCO) Has Caught The Eye Of Investors

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Tesco (LON:TSCO). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

View our latest analysis for Tesco

How Quickly Is Tesco Increasing Earnings Per Share?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That makes EPS growth an attractive quality for any company. Impressively, Tesco has grown EPS by 31% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Tesco maintained stable EBIT margins over the last year, all while growing revenue 3.9% to UK£69b. That's a real positive.

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 Tesco's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Tesco Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Belief in the company remains high for insiders as there hasn't been a single share sold by the management or company board members. But the bigger deal is that the Non-Executive Chair, Gerard Murphy, paid UK£148k to buy shares at an average price of UK£3.71. Strong buying like that could be a sign of opportunity.

Is Tesco Worth Keeping An Eye On?

If you believe that share price follows earnings per share you should definitely be delving further into Tesco's strong EPS growth. Not only is that growth rate rather juicy, but the insider buying adds fuel to the fire. To put it succinctly; Tesco is a strong candidate for your watchlist. We should say that we've discovered 1 warning sign for Tesco that you should be aware of before investing here.

The good news is that Tesco is not the only stock with insider buying. Here's a list of small cap, undervalued companies in GB with insider buying in the last three months!

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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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.