Do Patel Engineering's (NSE:PATELENG) Earnings Warrant Your Attention?

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. 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. 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.

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 Patel Engineering (NSE:PATELENG). 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.

Check out our latest analysis for Patel Engineering

How Fast Is Patel Engineering Growing Its Earnings Per Share?

In the last three years Patel Engineering's 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. So it would be better to isolate the growth rate over the last year for our analysis. Over the last year, Patel Engineering increased its EPS from ₹2.69 to ₹2.90. That's a fair increase of 7.5%.

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. Patel Engineering maintained stable EBIT margins over the last year, all while growing revenue 20% to ₹46b. That's encouraging news for the company!

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

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 Patel Engineering's balance sheet strength, before getting too excited.

Are Patel Engineering 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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

It's nice to see that there have been no reports of any insiders selling shares in Patel Engineering in the previous 12 months. Add in the fact that Dayanand Garg, the company insider of the company, paid ₹1.5m for shares at around ₹14.75 each. It seems that at least one insider is prepared to show the market there is potential within Patel Engineering.

Along with the insider buying, another encouraging sign for Patel Engineering is that insiders, as a group, have a considerable shareholding. As a matter of fact, their holding is valued at ₹3.8b. This considerable investment should help drive long-term value in the business. That amounts to 9.1% of the company, demonstrating a degree of high-level alignment with shareholders.

Does Patel Engineering Deserve A Spot On Your Watchlist?

One important encouraging feature of Patel Engineering is that it is growing profits. On top of that, we've seen insiders buying shares even though they already own plenty. That should do plenty in prompting budding investors to undertake a bit more research - or even adding the company to their watchlists. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for Patel Engineering (1 is a bit concerning) you should be aware of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Patel Engineering, you'll probably love this free list of growing companies that insiders are buying.

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.