Does Bajaj Auto (NSE:BAJAJ-AUTO) Deserve A Spot On Your Watchlist?

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. 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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like Bajaj Auto (NSE:BAJAJ-AUTO), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

See our latest analysis for Bajaj Auto

How Quickly Is Bajaj Auto 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. Shareholders will be happy to know that Bajaj Auto's EPS has grown 18% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. It's noted that Bajaj Auto's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. The music to the ears of Bajaj Auto shareholders is that EBIT margins have grown from 19% to 21% in the last 12 months and revenues are on an upwards trend as well. Both of which are great metrics to check off for potential growth.

You can take a look at the company's revenue and earnings growth trend, in the chart below. 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

We do note that, in the last year, insiders sold ₹542m worth of shares. But that's far less than the ₹4.8b insiders spent purchasing stock. We find this encouraging because it suggests they are optimistic about Bajaj Auto'sfuture. It is also worth noting that it was Non-Executive Director Sanjivnayan Bajaj who made the biggest single purchase, worth ₹1.9b, paying ₹4,597 per share.

The good news, alongside the insider buying, for Bajaj Auto bulls is that insiders (collectively) have a meaningful investment in the stock. We note that their impressive stake in the company is worth ₹81b. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.

Should You Add Bajaj Auto To Your Watchlist?

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. Astute investors will want to keep this stock on watch. Even so, be aware that Bajaj Auto is showing 1 warning sign in our investment analysis , you should know about...

Keen growth investors love to see insider activity. Thankfully, Bajaj Auto isn't the only one. You can see a a curated list of Indian companies which have exhibited consistent growth accompanied by high insider ownership.

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.