If You Like EPS Growth Then Check Out Dr. Reddy's Laboratories (NSE:DRREDDY) Before It's Too Late

By
Simply Wall St
Published
May 12, 2022
NSEI:DRREDDY
Source: Shutterstock

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Dr. Reddy's Laboratories (NSE:DRREDDY). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for Dr. Reddy's Laboratories

How Quickly Is Dr. Reddy's Laboratories Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. We can see that in the last three years Dr. Reddy's Laboratories grew its EPS by 15% per year. That growth rate is fairly good, assuming the company can keep it up.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Dr. Reddy's Laboratories maintained stable EBIT margins over the last year, all while growing revenue 11% to ₹207b. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

earnings-and-revenue-history
NSEI:DRREDDY Earnings and Revenue History May 12th 2022

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 Dr. Reddy's Laboratories's future profits.

Are Dr. Reddy's Laboratories Insiders Aligned With All Shareholders?

Since Dr. Reddy's Laboratories has a market capitalization of ₹645b, 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 have a glittering mountain of wealth invested in it, currently valued at ₹41b. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!

Should You Add Dr. Reddy's Laboratories To Your Watchlist?

One important encouraging feature of Dr. Reddy's Laboratories is that it is growing profits. If that's not enough on its own, there is also the rather notable levels of insider ownership. The combination sparks joy for me, so I'd consider keeping the company on a watchlist. Once you've identified a business you like, the next step is to consider what you think it's worth. And right now is your chance to view our exclusive discounted cashflow valuation of Dr. Reddy's Laboratories. You might benefit from giving it a glance today.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like 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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