Should You Be Adding Ramky Infrastructure (NSE:RAMKY) To Your Watchlist Today?

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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

Check out our latest analysis for Ramky Infrastructure

Ramky Infrastructure's Improving Profits

Strong earnings per share (EPS) results are an indicator of a company achieving solid profits, which investors look upon favourably and so the share price tends to reflect great EPS performance. So a growing EPS generally brings attention to a company in the eyes of prospective investors. Commendations have to be given in seeing that Ramky Infrastructure grew its EPS from ₹0.28 to ₹188, in one short year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

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. The good news is that Ramky Infrastructure is growing revenues, and EBIT margins improved by 2.8 percentage points to 23%, over the last year. Ticking those two boxes is a good sign of growth, in our book.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

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 Ramky Infrastructure's balance sheet strength, before getting too excited.

Are Ramky Infrastructure 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. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Over the last 12 months Ramky Infrastructure insiders spent ₹16m more buying shares than they received from selling them. Shareholders who may have questioned insiders selling will find some reassurance in this fact. It is also worth noting that it was company insider M. Reddy who made the biggest single purchase, worth ₹10m, paying ₹297 per share.

On top of the insider buying, we can also see that Ramky Infrastructure insiders own a large chunk of the company. Indeed, with a collective holding of 65%, company insiders are in control and have plenty of capital behind the venture. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. And their holding is extremely valuable at the current share price, totalling ₹31b. This is an incredible endorsement from them.

Should You Add Ramky Infrastructure To Your Watchlist?

Ramky Infrastructure's earnings have taken off in quite an impressive fashion. To make matters even better, the company insiders who know the company best have put their faith in the its future and have been buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Ramky Infrastructure deserves timely attention. Still, you should learn about the 2 warning signs we've spotted with Ramky Infrastructure.

The good news is that Ramky Infrastructure is not the only growth stock with insider buying. Here's a list of them... 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.