Do Bajaj Auto's (NSE:BAJAJ-AUTO) Earnings Warrant Your Attention?

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 currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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.

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 Bajaj Auto (NSE:BAJAJ-AUTO). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Bajaj Auto with the means to add long-term value to shareholders.

View our latest analysis for Bajaj Auto

Bajaj Auto's Earnings Per Share Are Growing

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. It certainly is nice to see that Bajaj Auto has managed to grow EPS by 18% per year over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Our analysis has highlighted that Bajaj Auto's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. Bajaj Auto maintained stable EBIT margins over the last year, all while growing revenue 11% to ₹403b. That's encouraging news for the company!

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Bajaj Auto's future EPS 100% free.

Are Bajaj Auto 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. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Although we did see some insider selling (worth ₹381m) this was overshadowed by a mountain of buying, totalling ₹4.8b in just one year. We find this encouraging because it suggests they are optimistic about Bajaj Auto'sfuture. We also note that it was the Non-Executive Director, Sanjivnayan Bajaj, who made the biggest single acquisition, paying ₹1.9b for shares at about ₹4,597 each.

Along with the insider buying, another encouraging sign for Bajaj Auto is that insiders, as a group, have a considerable shareholding. Notably, they have an enviable stake in the company, worth ₹48b. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.

Is Bajaj Auto Worth Keeping An Eye On?

If you believe that share price follows earnings per share you should definitely be delving further into Bajaj Auto's strong EPS growth. On top of that, insiders own a significant stake in the company and have been buying more shares. These things considered, this is one stock worth watching. What about risks? Every company has them, and we've spotted 1 warning sign for Bajaj Auto you should know about.

Keen growth investors love to see insider buying. Thankfully, Bajaj Auto isn't the only one. You can see a a free list of them here.

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.