Should You Be Adding Lakshmi Machine Works (NSE:LAXMIMACH) To Your Watchlist Today?

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. 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.

In contrast to all that, many investors prefer to focus on companies like Lakshmi Machine Works (NSE:LAXMIMACH), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Lakshmi Machine Works with the means to add long-term value to shareholders.

See our latest analysis for Lakshmi Machine Works

How Fast Is Lakshmi Machine Works Growing Its Earnings Per Share?

Over the last three years, Lakshmi Machine Works has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. Thus, it makes sense to focus on more recent growth rates, instead. In impressive fashion, Lakshmi Machine Works' EPS grew from ₹116 to ₹349, over the previous 12 months. It's not often a company can achieve year-on-year growth of 200%. The best case scenario? That the business has hit a true inflection point.

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. Lakshmi Machine Works shareholders can take confidence from the fact that EBIT margins are up from 4.9% to 8.0%, and revenue is growing. Ticking those two boxes is a good sign of growth, in our book.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Lakshmi Machine Works' balance sheet strength, before getting too excited.

Are Lakshmi Machine Works Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. Shareholders will be pleased by the fact that insiders own Lakshmi Machine Works shares worth a considerable sum. Notably, they have an enviable stake in the company, worth ₹17b. This totals to 14% of shares in the company. Enough to lead management's decision making process down a path that brings the most benefit to shareholders. Looking very optimistic for investors.

Should You Add Lakshmi Machine Works To Your Watchlist?

Lakshmi Machine Works' earnings have taken off in quite an impressive fashion. That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. So at the surface level, Lakshmi Machine Works is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. 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 Lakshmi Machine Works is trading on a high P/E or a low P/E, relative to its industry.

Although Lakshmi Machine Works 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.