With EPS Growth And More, Lloyds Engineering Works (NSE:LLOYDSENGG) Makes An Interesting Case

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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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.

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

See our latest analysis for Lloyds Engineering Works

Lloyds Engineering Works' Improving Profits

In the last three years Lloyds Engineering Works' earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. Thus, it makes sense to focus on more recent growth rates, instead. In impressive fashion, Lloyds Engineering Works' EPS grew from ₹0.39 to ₹0.77, over the previous 12 months. Year on year growth of 98% is certainly a sight to behold. That could be a sign that the business has reached a true inflection point.

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. The good news is that Lloyds Engineering Works is growing revenues, and EBIT margins improved by 2.6 percentage points to 16%, over the last year. 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 profitability drives the upside, prudent investors always check the balance sheet, too.

Are Lloyds Engineering Works Insiders Aligned With All Shareholders?

It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. So it is good to see that Lloyds Engineering Works insiders have a significant amount of capital invested in the stock. To be specific, they have ₹3.2b worth of shares. This considerable investment should help drive long-term value in the business. While their ownership only accounts for 3.7%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. For companies with market capitalisations between ₹34b and ₹134b, like Lloyds Engineering Works, the median CEO pay is around ₹31m.

Lloyds Engineering Works' CEO took home a total compensation package of ₹10m in the year prior to March 2024. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Does Lloyds Engineering Works Deserve A Spot On Your Watchlist?

Lloyds Engineering Works' earnings have taken off in quite an impressive fashion. An added bonus for those interested is that management hold a heap of stock and the CEO pay is quite reasonable, illustrating good cash management. The strong EPS improvement suggests the businesses is humming along. Lloyds Engineering Works is certainly doing some things right and is well worth investigating. We should say that we've discovered 2 warning signs for Lloyds Engineering Works that you should be aware of before investing here.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in IN with promising growth potential and insider confidence.

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.