Is Now The Time To Put HDFC Life Insurance (NSE:HDFCLIFE) On Your Watchlist?

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.

In contrast to all that, many investors prefer to focus on companies like HDFC Life Insurance (NSE:HDFCLIFE), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide HDFC Life Insurance with the means to add long-term value to shareholders.

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HDFC Life Insurance's Earnings Per Share Are Growing

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That makes EPS growth an attractive quality for any company. We can see that in the last three years HDFC Life Insurance grew its EPS by 9.0% per year. That's a good rate of growth, if it can be sustained.

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, last year, HDFC Life Insurance's revenue from operations was lower than its revenue, so that could distort our analysis of its margins. 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.

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.

View our latest analysis for HDFC Life Insurance

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

Are HDFC Life Insurance Insiders Aligned With All Shareholders?

Since HDFC Life Insurance has a market capitalisation of ₹1.7t, we wouldn't expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. Indeed, they hold ₹3.0b worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. While their ownership only accounts for 0.2%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.

Is HDFC Life Insurance Worth Keeping An Eye On?

One important encouraging feature of HDFC Life Insurance is that it is growing profits. For those who are looking for a little more than this, the high level of insider ownership enhances our enthusiasm for this growth. The combination definitely favoured by investors so consider keeping the company on a watchlist. Of course, profit growth is one thing but it's even better if HDFC Life Insurance is receiving high returns on equity, since that should imply it can keep growing without much need for capital. Click on this link to see how it is faring against the average in its industry.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in IN with promising growth potential and insider confidence.

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.