Does Patel Engineering (NSE:PATELENG) Deserve A Spot 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 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 Patel Engineering (NSE:PATELENG), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

Check out our latest analysis for Patel Engineering

How Fast Is Patel Engineering Growing Its Earnings Per Share?

Over the last three years, Patel Engineering 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. As a result, we'll zoom in on growth over the last year, instead. Patel Engineering's EPS shot up from ₹1.51 to ₹2.37; a result that's bound to keep shareholders happy. That's a fantastic gain of 57%.

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. EBIT margins for Patel Engineering remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 24% to ₹42b. That's encouraging news for the company!

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.

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?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

It's nice to see that there have been no reports of any insiders selling shares in Patel Engineering in the previous 12 months. With that in mind, it's heartening 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. Indeed, they hold ₹3.4b worth of its stock. This considerable investment should help drive long-term value in the business. Those holdings account for over 9.1% of the company; visible skin in the game.

Does Patel Engineering Deserve A Spot On Your Watchlist?

You can't deny that Patel Engineering has grown its earnings per share at a very impressive rate. That's attractive. Moreover, the management and board of the company hold a significant stake in the company, with one party adding to this total. These things considered, this is one stock worth watching. You should always think about risks though. Case in point, we've spotted 3 warning signs for Patel Engineering you should be aware of, and 2 of them are a bit concerning.

Keen growth investors love to see insider buying. Thankfully, Patel Engineering isn't the only one. You can see a a free list of them here.

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.