Is Now The Time To Put Larsen & Toubro (NSE:LT) On Your Watchlist?

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 Larsen & Toubro (NSE:LT). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

See our latest analysis for Larsen & Toubro

Larsen & Toubro's Earnings Per Share Are Growing

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Shareholders will be happy to know that Larsen & Toubro's EPS has grown 19% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

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. It's noted that Larsen & Toubro's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. EBIT margins for Larsen & Toubro remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 17% to ₹2.5t. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Larsen & Toubro's future profits.

Are Larsen & Toubro Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. 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.

Even though some insiders sold down their holdings, their actions speak louder than words with ₹19m more invested than sold by people who know they company best. This overall confidence in the company at current the valuation signals their optimism. Zooming in, we can see that the biggest insider purchase was by Senior EVP of Heavy Engineering & L&T Valves and Whole-Time Director Anil Parab for ₹15m worth of shares, at about ₹3,365 per share.

Along with the insider buying, another encouraging sign for Larsen & Toubro is that insiders, as a group, have a considerable shareholding. Given insiders own a significant chunk of shares, currently valued at ₹7.1b, they have plenty of motivation to push the business to succeed. This should keep them focused on creating long term value for shareholders.

Does Larsen & Toubro Deserve A Spot On Your Watchlist?

You can't deny that Larsen & Toubro has grown its earnings per share at a very impressive rate. That's attractive. Furthermore, company insiders have been adding to their significant stake in the company. Astute investors will want to keep this stock on watch. What about risks? Every company has them, and we've spotted 2 warning signs for Larsen & Toubro (of which 1 is significant!) you should know about.

The good news is that Larsen & Toubro is not the only stock with insider buying. Here's a list of small cap, undervalued companies in IN 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.

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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.