Here's Why We Think HDFC Life Insurance (NSE:HDFCLIFE) Is Well Worth Watching

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.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like HDFC Life Insurance (NSE:HDFCLIFE). 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.

View our latest analysis for HDFC Life Insurance

How Fast Is HDFC Life Insurance Growing Its Earnings Per Share?

Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So it's no surprise that some investors are more inclined to invest in profitable businesses. It's good to see that HDFC Life Insurance's EPS has grown from ₹5.78 to ₹7.04 over twelve months. There's little doubt shareholders would be happy with that 22% gain.

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. Not all of HDFC Life Insurance's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. While HDFC Life Insurance may have maintained EBIT margins over the last year, revenue has fallen. This does not bode too well for short term growth prospects and so understanding the reasons for these results is of great importance.

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

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for HDFC Life Insurance's future profits.

Are HDFC Life Insurance Insiders Aligned With All Shareholders?

Owing to the size of HDFC Life Insurance, we wouldn't expect insiders to hold a significant proportion of the company. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. Given insiders own a significant chunk of shares, currently valued at ₹4.6b, they have plenty of motivation to push the business to succeed. That's certainly enough to let shareholders know that management will be very focussed on long term growth.

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. A brief analysis of the CEO compensation suggests they are. Our analysis has discovered that the median total compensation for the CEOs of companies like HDFC Life Insurance, with market caps over ₹652b, is about ₹108m.

HDFC Life Insurance's CEO took home a total compensation package worth ₹74m in the year leading up to March 2022. That seems pretty reasonable, especially given it's below the median for similar sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is HDFC Life Insurance Worth Keeping An Eye On?

As previously touched on, HDFC Life Insurance is a growing business, which is encouraging. The fact that EPS is growing is a genuine positive for HDFC Life Insurance, but the pleasant picture gets better than that. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. You still need to take note of risks, for example - HDFC Life Insurance has 1 warning sign we think you should be aware of.

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.