Is Now The Time To Put Cholamandalam Investment and Finance (NSE:CHOLAFIN) 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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. 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 Cholamandalam Investment and Finance (NSE:CHOLAFIN). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Cholamandalam Investment and Finance with the means to add long-term value to shareholders.

View our latest analysis for Cholamandalam Investment and Finance

How Fast Is Cholamandalam Investment and Finance Growing?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Cholamandalam Investment and Finance has managed to grow EPS by 22% per year over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Our analysis has highlighted that Cholamandalam Investment and Finance's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. While we note Cholamandalam Investment and Finance achieved similar EBIT margins to last year, revenue grew by a solid 4.9% to ₹60b. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

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 Cholamandalam Investment and Finance's future EPS 100% free.

Are Cholamandalam Investment and Finance Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a ₹626b company like Cholamandalam Investment and Finance. But we do take comfort from the fact that they are investors in the company. We note that their impressive stake in the company is worth ₹8.6b. Holders should find this level of insider commitment quite encouraging, since it would ensure that the leaders of the company would also experience their success, or failure, with the stock.

Should You Add Cholamandalam Investment and Finance To Your Watchlist?

For growth investors, Cholamandalam Investment and Finance's raw rate of earnings growth is a beacon in the night. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in Cholamandalam Investment and Finance's continuing strength. The growth and insider confidence is looked upon well and so it's worthwhile to investigate further with a view to discern the stock's true value. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Cholamandalam Investment and Finance , and understanding this should be part of your investment process.

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 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.