Here's Why We Think Alkem Laboratories (NSE:ALKEM) 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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

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

Alkem Laboratories' Earnings Per Share Are Growing

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That means EPS growth is considered a real positive by most successful long-term investors. Alkem Laboratories managed to grow EPS by 6.6% per year, over three years. While that sort of growth rate isn't anything to write home about, it does show the business is growing.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. This approach makes Alkem Laboratories look pretty good, on balance; although revenue is flattish, EBIT margins improved from 15% to 17% in the last year. Which is a great look for the company.

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.

See our latest analysis for Alkem Laboratories

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

Are Alkem Laboratories Insiders Aligned With All Shareholders?

Theory would suggest that it's an encouraging sign to see high insider ownership of a company, since it ties company performance directly to the financial success of its management. So we're pleased to report that Alkem Laboratories insiders own a meaningful share of the business. Actually, with 46% of the company to their names, insiders are profoundly invested in the business. This should be a welcoming sign for investors because it suggests that the people making the decisions are also impacted by their choices. ₹279b That level of investment from insiders is nothing to sneeze at.

Does Alkem Laboratories Deserve A Spot On Your Watchlist?

One positive for Alkem Laboratories is that it is growing EPS. That's nice to see. To add an extra spark to the fire, significant insider ownership in the company is another highlight. The combination definitely favoured by investors so consider keeping the company on a watchlist. You still need to take note of risks, for example - Alkem Laboratories has 1 warning sign we think you should be aware of.

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 tailored list of Indian companies which have demonstrated growth backed by significant insider holdings.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.