Should You Be Adding Elecon Engineering (NSE:ELECON) 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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Elecon Engineering (NSE:ELECON). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Elecon Engineering with the means to add long-term value to shareholders.

Check out our latest analysis for Elecon Engineering

How Quickly Is Elecon Engineering Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Elecon Engineering's shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 57%. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors.

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. Elecon Engineering shareholders can take confidence from the fact that EBIT margins are up from 17% to 20%, and revenue is growing. Ticking those two boxes is a good sign of growth, in our book.

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.

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Elecon Engineering 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.

The real kicker here is that Elecon Engineering insiders spent a staggering ₹107m on acquiring shares in just one year, without single share being sold in the meantime. Knowing this, Elecon Engineering will have have all eyes on them in anticipation for the what could happen in the near future. We also note that it was the company insider, Nehal Patel, who made the biggest single acquisition, paying ₹35m for shares at about ₹586 each.

Along with the insider buying, another encouraging sign for Elecon Engineering is that insiders, as a group, have a considerable shareholding. Given insiders own a significant chunk of shares, currently valued at ₹7.4b, they have plenty of motivation to push the business to succeed. That's certainly enough to let shareholders know that management will be very focussed on long term growth.

Should You Add Elecon Engineering To Your Watchlist?

Elecon Engineering's earnings per share have been soaring, with growth rates sky high. Just as heartening; insiders both own and are buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Elecon Engineering deserves timely attention. Of course, just because Elecon Engineering is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

The good news is that Elecon Engineering is not the only growth stock with insider buying. Here's a list of them... 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.

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.