Should You Be Adding Grasim Industries (NSE:GRASIM) To Your Watchlist Today?

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 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 Grasim Industries (NSE:GRASIM). 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 Grasim Industries

How Fast Is Grasim Industries Growing Its Earnings Per Share?

Over the last three years, Grasim Industries has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. As a result, we'll zoom in on growth over the last year, instead. In impressive fashion, Grasim Industries' EPS grew from ₹61.95 to ₹107, over the previous 12 months. Year on year growth of 73% is certainly a sight to behold. The best case scenario? That the business has hit a true inflection point.

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. While Grasim Industries did well to grow revenue over the last year, EBIT margins were dampened at the same time. If EBIT margins are able to stay balanced and this revenue growth continues, then we should see brighter days ahead.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Grasim Industries.

Are Grasim Industries Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a ₹848b company like Grasim Industries. 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. As a matter of fact, their holding is valued at ₹3.6b. This considerable investment should help drive long-term value in the business. Despite being just 0.4% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Does Grasim Industries Deserve A Spot On Your Watchlist?

Grasim Industries' 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. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. So based on this quick analysis, we do think it's worth considering Grasim Industries for a spot on your watchlist. Even so, be aware that Grasim Industries is showing 4 warning signs in our investment analysis , and 1 of those is a bit concerning...

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.