Here's Why We Think IIFL Finance (NSE:IIFL) Is Well Worth Watching

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. 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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

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 IIFL Finance (NSE:IIFL). 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.

See our latest analysis for IIFL Finance

How Fast Is IIFL Finance Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. To the delight of shareholders, IIFL Finance has achieved impressive annual EPS growth of 44%, compound, over the last three years. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.

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. It's noted that IIFL Finance's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. EBIT margins for IIFL Finance remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 29% to ₹53b. That's encouraging news for the company!

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of IIFL Finance's forecast profits?

Are IIFL Finance Insiders Aligned With All Shareholders?

It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. Shareholders will be pleased by the fact that insiders own IIFL Finance shares worth a considerable sum. Indeed, they have a considerable amount of wealth invested in it, currently valued at ₹48b. This totals to 25% of shares in the company. Enough to lead management's decision making process down a path that brings the most benefit to shareholders. Looking very optimistic for investors.

Does IIFL Finance Deserve A Spot On Your Watchlist?

IIFL Finance's earnings per share have been soaring, with growth rates sky high. That sort of growth is nothing short of eye-catching, and the large investment held by insiders should certainly brighten the view of the company. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. Based on the sum of its parts, we definitely think its worth watching IIFL Finance very closely. Still, you should learn about the 2 warning signs we've spotted with IIFL Finance (including 1 which is significant).

The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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.