Should You Be Adding Larsen & Toubro (NSE:LT) To Your Watchlist Today?

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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.

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

How Quickly Is Larsen & Toubro Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. Larsen & Toubro managed to grow EPS by 12% per year, over three years. That growth rate is fairly good, assuming the company can keep it up.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Not all of Larsen & Toubro's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. 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 20% to ₹2.0t. That's progress.

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Larsen & Toubro.

Are Larsen & Toubro Insiders Aligned With All Shareholders?

Since Larsen & Toubro has a market capitalisation of ₹3.8t, we wouldn't expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. Given insiders own a significant chunk of shares, currently valued at ₹5.8b, they have plenty of motivation to push the business to succeed. This would indicate that the goals of shareholders and management are one and the same.

Is Larsen & Toubro Worth Keeping An Eye On?

As previously touched on, Larsen & Toubro is a growing business, which is encouraging. To add an extra spark to the fire, significant insider ownership in the company is another highlight. These two factors are a huge highlight for the company which should be a strong contender your watchlists. 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 beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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.