Should You Be Adding Action Construction Equipment (NSE:ACE) To Your Watchlist Today?

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. 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. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

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

See our latest analysis for Action Construction Equipment

Action Construction Equipment's Improving Profits

Action Construction Equipment has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. Thus, it makes sense to focus on more recent growth rates, instead. Action Construction Equipment's EPS skyrocketed from ₹10.97 to ₹16.43, in just one year; a result that's bound to bring a smile to shareholders. That's a impressive gain of 50%.

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. The music to the ears of Action Construction Equipment shareholders is that EBIT margins have grown from 8.1% to 13% 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.

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

Are Action Construction Equipment Insiders Aligned With All Shareholders?

Theory would suggest that it's an encouraging sign to see high insider ownership of a company, since it ties company performance directly to the financial success of its management. So those who are interested in Action Construction Equipment will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. To be exact, company insiders hold 70% of the company, so their decisions have a significant impact on their investments. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. And their holding is extremely valuable at the current share price, totalling ₹56b. That means they have plenty of their own capital riding on the performance of the business!

Should You Add Action Construction Equipment To Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Action Construction Equipment's strong EPS growth. This EPS growth rate is something the company should be proud of, and so it's no surprise that insiders are holding on to a considerable chunk of shares. On the balance of its merits, solid EPS growth and company insiders who are aligned with the shareholders would indicate a business that is worthy of further research. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Action Construction Equipment is trading on a high P/E or a low P/E, relative to its industry.

Although Action Construction Equipment 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.

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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.