Does Transformers and Rectifiers (India) (NSE:TARIL) Deserve A Spot On Your Watchlist?

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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.

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 Transformers and Rectifiers (India) (NSE:TARIL). 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 Transformers and Rectifiers (India)

Transformers and Rectifiers (India)'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. It is awe-striking that Transformers and Rectifiers (India)'s EPS went from ₹0.51 to ₹5.33 in just one 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.

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. Transformers and Rectifiers (India) shareholders can take confidence from the fact that EBIT margins are up from 5.8% to 13%, and revenue is growing. 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. To see the actual numbers, click on the chart.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Transformers and Rectifiers (India)'s future EPS 100% free.

Are Transformers and Rectifiers (India) Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So those who are interested in Transformers and Rectifiers (India) will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. Indeed, with a collective holding of 68%, 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. At the current share price, that insider holding is worth a staggering ₹82b. That means they have plenty of their own capital riding on the performance of the business!

Should You Add Transformers and Rectifiers (India) To Your Watchlist?

Transformers and Rectifiers (India)'s earnings per share have been soaring, with growth rates sky high. This level of EPS growth does wonders for attracting investment, and the large insider investment in the company is just the cherry on top. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So based on this quick analysis, we do think it's worth considering Transformers and Rectifiers (India) for a spot on your watchlist. We don't want to rain on the parade too much, but we did also find 1 warning sign for Transformers and Rectifiers (India) that you need to be mindful of.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of Indian companies which have demonstrated growth backed by significant insider holdings.

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.